1H24 results were slightly lower than our expectations

The company announced 1H24 results: 1H24 achieved revenue of 0.645 billion yuan, +28.1% YoY; net profit to mother 0.094 billion yuan, +29.0% YoY. 2Q24 achieved revenue of 0.333 billion yuan, +18.2% YoY; net profit to mother 0.038 billion yuan, -13.5% YoY. The company's 1H24 performance was slightly lower than our expectations, mainly due to the increase in R&D expenses in Q2, and the Q2 R&D expenditure ratio increased by 3.4ppt to 13.8% year-on-year.

Development trends

The automotive electronics sector continues to grow rapidly. The revenue of the 1H24 automotive electronics segment was +33.33% to 0.34 billion yuan, maintaining a continuous growth trend since '22. As automotive electronics enter a new cycle of technological innovation, the penetration rate of automotive electronics and the value of bicycles continue to rise. Currently, in the field of automotive electronics, the company has a deep foundation of cooperation with major automotive industry customers such as Bosch, BYD, and Great Wall. Related products such as vehicle screen actuators, automobile thermal management actuators, electronic parking (MGU), automobile active lift tail actuators, and car hidden door handle drive systems have been successfully used in domestic independent brands and new car companies. We believe that as the automotive electronics penetration rate continues to increase and the global market share of new energy vehicles continues to expand, the company's automotive electronics sector will continue to grow.

The communications and smart consumer sectors are picking up, and the medical and personal care sector continues to be under pressure. 1H24's communications sector was +19.2% YoY to 0.087 billion yuan, and the smart consumer sector was +51.5% YoY to 0.153 billion yuan, mainly due to a recovery in downstream demand. The healthcare and personal care sector was -40.4% to 0.015 billion yuan, mainly affected by low demand.

MR products are beginning to contribute to performance, and the second generation is expected to contribute greater performance flexibility. The company supplies MR pupil distance adjustment systems to major North American customers, PICO, etc., and has been confirming revenue since 2022. We anticipate that MR products will later introduce a focal length adjustment system. The precision gear transmission system used will have higher precision and higher technical barriers. MR second-generation products are expected to contribute to the company's greater performance flexibility. We recommend focusing on catalysts such as the determination of MR second-generation product drawings and the progress of first-generation product addition.

Profit forecasting and valuation

Considering the uncertainty of the company's MR business progress, we lowered 2024/2025 net profit of 14.9%/20.0% to 0.215 billion/ 0.303 billion yuan; the current stock price corresponds to the 2024/2025 price-earnings ratio of 42.5 times/30.2 times. Considering the downward trend in the industry's valuation center, we maintained an outperforming industry rating but lowered our target price by 30% to 56 yuan. Our initial valuation switched to 25 years, corresponding to 44.1 times the 2025 price-earnings ratio, which has 46% room to rise compared to the current stock price.

risks

The expansion of the automotive electronics business fell short of expectations; MR products fell short of expectations.