Incidents:

On August 30, the company released its 2024 semi-annual report: 2024H1. The company achieved revenue of 0.065 billion yuan, or -43.42% year-on-year; net profit to mother -0.53 billion yuan, narrowing losses by 2.7%. 2024Q2 achieved revenue of 0.039 billion yuan, -0.21% YoY; net profit to mother -0.303 billion yuan, or -4.71% YoY.

Investment highlights:

2024H1 Final Advance Payments and Inventories Grew Significantly, Demonstrating High Growth Confidence in the Future

2024H1, the decline in the company's revenue was mainly affected by adverse factors in the supply chain such as the “entity list”; the loss in performance was mainly due to the company continuing to invest heavily in R&D to ensure high-quality iteration of smart chip products and basic system software platforms and maintain a leading technological advantage in a competitive market. The company will continue to expand its market share, accelerate the implementation of scenarios, focus on technological innovation, and continue to build an ecosystem and brand to enhance the company's core competition.

As of 2024H1, the company's advance payment was 0.55 billion yuan, a record high, and an increase of 0.402 billion yuan compared to the beginning of the year; inventory was 0.235 billion yuan, an increase of 0.136 billion yuan compared to the beginning of the year, mainly due to an increase in inventory of raw materials. The company's prepaid accounts and inventory continue to rise. This may mean that the company is adding orders to upstream suppliers and is actively preparing materials for production. The future growth may be more optimistic.

Cooperate with customers in the Internet/Big Model/Finance industries to achieve batch shipment of products

2024H1, the company's smart chip products carry out in-depth cooperation on product applications and advanced technology with leading customers in cutting-edge fields such as the Internet and large models.

1) Internet: The company continues to deepen cooperation with customers in the Internet field. 2024H1, the company's products are shipped in batches in natural language application scenarios. The company's current product measurement capabilities and iterative expectations all meet customer needs.

2) Big model: The company continues to carry out business and technical cooperation with leading domestic algorithm companies, and the company helps customers explore and implement big model applications in their respective vertical fields. In fields such as large visual/language models, the company's products have been adapted to large models for leading customers in this field, and have obtained multiple product compatibility certifications from customers.

3) Finance: The company and many financial institutions have tested large language models and explored industry applications, and actively promoted the implementation of applications in the financial field.

4) Other vertical industries: The company's smart chip products continue to protect the intelligent transformation of traditional industries and help implement business in scenarios such as smart granaries, smart mines, and smart transportation.

Adhere to independent innovation+efficient R&D, and continuously strengthen software and hardware capabilities

The company has always placed independent innovation and efficient R&D at the core of its strategic layout. With 2024H1, the company invested 0.447 billion yuan in R&D, a year-on-year decrease of 7.27%, accounting for 690.92% of R&D. The number of R&D personnel in the company was 727, a year-on-year decrease of 253, accounting for 74.79% of R&D personnel. The R&D team has a reasonable structure and comprehensive skills, which strongly supports the company's technological innovation and product research and development.

Hardware: The company's next-generation intelligent processor microarchitecture and instruction set are under development. As of 2024H1, the company's ongoing research projects include high-end and mid-range cloud smart chips, edge and in-vehicle smart chips.

Software: Optimize the iterative basic software system platform. ① Training software platform: The company successfully verified the pre-training function of large language models on the cluster, achieved the continuous and stable operation of an industry-leading single training task for a long period of time, and achieved industry-leading computational efficiency and energy efficiency. ② Inference software platform: The company has made progress in AIGC business adaptation, open source ecosystem construction, and ease of use.

Profit forecast and investment rating: The company is a world-renowned emerging company in the field of smart chips. It can provide serialized smart chip products and platform-based system software with cloud-edge integration, software and hardware collaboration, and integrated training and reasoning, and a unified ecosystem. It is expected to benefit from the computing power requirements brought about by the development of large models and the continuous selection of the company's products. We forecast revenue of 1.4/2.493/3.484 billion yuan from 2024 to 2026, net profit to mother of -0.441/0.018/0.25 billion yuan, corresponding PS of 77/43/31X, maintaining an “incremental” rating.

Risk warning: The macroeconomy affects downstream demand, the development of the large model industry falls short of expectations, market competition intensifies, the game between China and the US intensifies, the company's performance falls short of expectations, the company's new product development falls short of expectations, etc.