The company's revenue grew steadily in the first half of the year, and the continued implementation of new product lines drove a high growth in the smart traffic operation management system business. Policies related to smart transportation construction are frequent, emphasizing smart traffic roadside construction and vehicle terminal assembly opportunities. The company is deeply involved in the preparation of solutions such as digitization of transportation infrastructure, and the implementation of related projects is expected to further open up the company's business space.

Event: The company released its 2024 mid-year report. In the first half of '24, the company achieved operating income of 0.328 billion yuan, YoY +18.18%; realized net profit to mother of 0.106 billion yuan, YoY +8.01%; realized deducted non-net profit of 0.097 billion yuan, YoY +8.01%. Sales/management/R&D expenses were 0.032/0.034/0.025 billion yuan, YoY -4.20%/-3.03%/+8.22%, respectively. Net operating cash flow of -0.068 billion yuan was achieved compared to -0.106 billion yuan in the same period last year. Among them, Q2 achieved revenue of 0.175 billion yuan and YoY +21.32% in a single quarter; realized net profit to mother of 0.061 billion yuan, YoY +6.84%; realized deducted non-net profit of 0.052 billion yuan, YoY +6.70%.

Overall revenue has grown steadily, and new products have boosted the smart traffic operation management system business. 24H1's ETC distribution/electronic charging/smart transportation operation management/smart transportation derivative business achieved operating income of 1.13/0.07/0.126/0.019 billion yuan, an increase of +11.65%/-3.51%/+38.86%/+45.56% year-on-year. The company's ETC distribution business grew steadily, with a circulation of 1.058 million units in the first half of the year, accounting for 12.9% of the national circulation. Furthermore, the company continues to develop derivative businesses such as supply chain collaboration and scenario value-added around ETC+, promoting continued high revenue growth in smart transportation derivative business. The continuous implementation of new products such as AI video analysis cloud control platforms and toll robots has driven the smart traffic operation and management business revenue growth rate to further increase compared to Q1. Currently, the company's smart transportation products have covered about 20 provinces and cities across the country, and large-scale promotion has been achieved.

It is expected that in the future, with the further promotion of the company's new products and the implementation of smart traffic roadside construction policies and projects, the company's smart transportation operation and management business development space will be broad.

Expenses are well controlled, and interest rate fluctuations affect the net profit growth rate. 24H1's sales/management/R&D expenses were 0.032/0.034/0.025 billion yuan respectively, YoY -4.20%/-3.03%/+8.22%, and the company's overall cost control was good. However, the company's interest income in the first half of the year decreased by 50% compared to the same period last year, mainly due to changes in the structure of cash management products and lower interest rates on deposits, which led to a decrease in interest income included in financial expenses during the reporting period, which caused the company's net profit growth rate to be lower than the revenue growth rate.

Policies and technical two-wheel drive, focusing on smart traffic roadside construction and vehicle terminal assembly opportunities, are expected to further open up the company's business space. In January '24, five departments jointly issued the “Notice on Launching the “Vehicle Road Cloud Integration” Application Pilot Project for Intelligent Connected Vehicles, focusing on 9 areas, including building intelligent roadside infrastructure, improving the assembly rate of vehicle terminals, and carrying out large-scale demonstration applications. On July 3, the first batch of 20 application pilot cities was announced. On July 3, the first batch of 20 application pilot cities was announced. Three cities in Jiangsu Province entered the list. On April 29, the Ministry of Finance and the Ministry of Transport jointly issued the “Notice on Supporting and Guiding the Digital Transformation and Upgrading of Highway and Waterway Transport Infrastructure”. On July 25, Jiangsu entered the digital transformation and upgrading demonstration area list (first batch), and the company participated in the preparation of implementation plans for the Ministry of Transport and the first batch of demonstration zones in Jiangsu and Hunan provinces. The depth and scope of participation was at the leading level in the industry. Intelligent transportation policies are frequent. Whether it is intelligent roadside infrastructure construction or vehicle-mounted smart transportation terminals, they are all areas where Tongbao excels, and Jiangsu Province has taken the lead in entering the first batch of pilot lists for vehicle road cloud and digital transportation transformation. The industry is booming, which is conducive to further promotion and application of the company's smart transportation cloud business.

Maintain a “Highly Recommended” investment rating. The company's performance has grown steadily, and new smart transportation operation management system products continue to be implemented; smart transport-related policies are frequent, and smart traffic roadside construction and vehicle terminal assembly opportunities are expected to further open up the company's business space. The company's net profit for 2024-2026 is expected to be 0.235/0.289/0.341 billion yuan, corresponding to the 2024-2026 PE 33/27/23 times. Maintain a “Highly Recommended” investment rating.

Risk warning: Policy progress falls short of expectations; smart transportation operation management system business development falls short of expectations; downstream demand fluctuates.