Incident: On August 29, Hongquan IoT released the 2024 semi-annual report. According to the report, the company's revenue for the first half of the year was 0.244 billion yuan, up 42.56% year on year; net profit to mother was -18.2161 million yuan.

Revenue grew rapidly, and losses narrowed significantly. In 2Q24, the company achieved revenue of 0.115 billion yuan, a year-on-year increase of 34.40%; net profit to mother was 0.008 billion yuan, and losses narrowed from month to month. In terms of cost rates, the sales expense ratio, and R&D expense ratio for the second quarter were 3.40%, 7.29%, and 32.52%, respectively, -3.93pct, +0.02pct, and +4.14pct month-on-month, respectively. The company's sales expense ratio was properly controlled. Furthermore, as of the first half of the year, the company had 391 R&D personnel, a decrease of 58 compared to the end of last year, and personnel were optimized for cost control.

New products will be an important driving force for the company's rapid growth. According to the company's semi-annual report, among the main terminal products sold by 1H24, revenue from intelligent connectivity products was 0.156 billion yuan, up 28.80% year on year; revenue from smart cockpit products was 0.025 billion yuan, up 174.17% year on year; and revenue from controller products was 0.027 billion yuan, up 204.20% year on year. New products and new businesses will be an important driving force for the company's rapid growth. On the customer side, ① in the first half of the year, the company strengthened communication with key commercial vehicle customers to ensure mass production and delivery of products and achieve continuous sales growth; ② In the passenger car sector, the company continued to cooperate with well-known Tier 1 and OEMs at home and abroad, and mass-produced products such as integrated thermal management controllers, vehicle coolers and heaters, long rail controllers, seat controllers, massage controllers, T-BOX, etc., and the revenue of controllers doubled in the first half of the year, and the overall revenue of passenger cars continued to rise, accounting for more than 8%; ③ The company continued to explore the intelligence of other models Due to the demand for connectivity, some progress has been made in the two-wheeler sector in the first half of the year. In particular, some sales revenue was achieved in the high-end motorcycle sector.

Investment advice: The company is expected to resonate with three hits: an increase in market share, an increase in product unit price, and product line expansion. We expect the company to achieve operating income of 0.582/0.795/1.011 billion yuan and net profit to mother of 0/0.012/0.073 billion yuan in 2024-2026, corresponding to PE 103/18 times in 2025-2026, respectively, maintaining the “gain” rating.

Risk warning: Industry recovery falls short of expected risks; risks falling short of expectations when the new national standard for driving recorders falls short of expectations; risk of falling short of expectations in development and production of controller products; downside macroeconomic risks, etc.