2Q24 results fell short of our expectations

The company announced the interim report: 1H24 revenue of 0.307 billion yuan, -1%/-15%; net profit to mother of 7.65 million yuan, -83%/-88% month-on-month; net loss after deduction of net loss to mother was 18.25 million yuan. Non-recurring profit and loss mainly came from changes in the fair value of negotiable large deposit certificates. 2Q24 revenue in a single quarter was 0.156 billion yuan, +1%/+3% YoY; net profit to mother was 1.34 million yuan, -94%/-79% YoY. Due to weak demand and continued investment in expenses during the period, the company's net profit for 2Q24 fell short of our expectations.

Development trends

Insufficient demand and high costs put pressure on profits in the second quarter. 2Q24 The company's sales/management/R&D expense ratio was 19.1%/16.5%/28.7%, +0.7pp/+5.1ppt, +6.3ppt, and +2.5ppt month-on-month. The cost ratio increased significantly from month to month, mainly due to increased expenses but failed to be diluted by revenue. Among them, the increase in the company's R&D expenses was mainly due to the increase in R&D personnel remuneration, R&D material consumption, and depreciation of R&D equipment due to the completion of the company's R&D centers in Xi'an and Shanghai; the increase in management expenses was mainly due to the increase in personnel and depreciation of the subsidiary's unused plant and usage rights assets.

Self-development and high-end logic remained unchanged, and gross margin reached a record high in the second quarter. 2Q24 had a gross profit margin of 58.5%, +1.5pp/+3.7ppt month-on-month. We think the main reason was the increase in sales ratio of oscilloscopes equipped with self-developed chips. In 2Q24, the ratio reached 83.06%, +10.30ppt month-on-month. Among self-developed chip products, the 1H24 high-end oscilloscope's sales revenue accounts for 23.92% of the oscilloscope, which we believe reflects the company's smooth progress in high-end development; DHO high-resolution series products continued to be released, and 1H24 sales revenue increased 201% year-on-year. On August 8, the company released the DHO 5000 series oscilloscope, broadening the high-resolution product line to 1 GHz.

We believe that as self-developed chip products continue to be iterated and deployed, the company's gross margin is expected to increase further.

The monthly operating situation improved in July, waiting for demand and profitability to recover. According to the interim report, according to preliminary statistics, the company's revenue growth in July was not less than 33.81%. The year-on-year growth rate in a single month is moving towards the equity incentive target. In addition, there are also 26.3 million yuan orders that have already been shipped but not yet confirmed, which are expected to confirm revenue in the third quarter. We believe that as universities, research institutes, etc. enter the peak procurement period in the second half of the year, and financial subsidies under the “trade-in” policy are gradually implemented, the company's revenue situation is expected to improve, leading to a decrease in expenses and an improvement in profit margins during the period.

Profit forecasting and valuation

Due to demand recovery falling short of expectations, we reduced 2024/2025 net profit by 35%/27% to 0.095 billion yuan/0.144 billion yuan. The current stock price corresponds to 2024/2025 P/E 49.3x/32.4x. Considering the company's long-term growth potential in the fields of high-end oscilloscopes, modular products, quantum computing, etc., we maintain an outperforming industry rating, and we expect that as demand gradually recovers, the company's profitability may trend to a normal level in 2025. We will switch to 40x P/E in 2025 to give a target price of 31.12 yuan, a decrease of 34.5% from the previous target price, and a 23.5% increase from the current stock price.

risks

Market demand falls short of expectations, high-end product launches or sales fall short of expectations, and market competition intensifies.