The company's 1H24 performance is in line with market expectations

The company announced 1H24 results: operating income of 0.843 billion yuan, -17.66% year over year; loss of 0.185 billion yuan; loss after deduction of 0.197 billion yuan. The company's performance is in line with market expectations. Looking at a single quarter, 2Q24 achieved revenue of 0.622 billion yuan, -16.99% year-on-year, +180.72% month-on-month; loss of 0.034 billion yuan.

Development trends

2Q24 performance improved month-on-month, and business revenue in the PIE+ industry maintained steady growth. 1) The suspension of the company's 2H23 special bidding qualifications caused delays in the bidding process for some projects. Combined with pressure on the macroeconomic environment, the number of orders signed in 2023 decreased year-on-year, resulting in a year-on-year decline in 1H24's revenue scale. The company's 2Q24 revenue increased 181% month-on-month, losses narrowed to 0.034 billion yuan, and special and general industry orders resumed one after another. 2) By business, 1H24 space infrastructure planning and construction business revenue was 0.037 billion yuan, -88.44%; PIE+ industry business revenue was 0.794 billion yuan, +21.06% year over year, maintaining steady growth; cloud service product line business revenue was 0.012 billion yuan, compared to -74.17% year on year.

Gross margin fluctuated due to the order structure, and cash outflow narrowed year over year. 1) The company's 1H24 gross margin decreased by 22.11ppt to 27.56% year on year. We believe that the proportion of supporting hardware in 1H24 completed the inspection project was relatively high, which led to an increase in related costs. 2) The company's expense ratio during the 1H24 period was +2.74ppt to 52.11% year on year. Against the backdrop of revenue fluctuations, the company continued to promote cost control, and sales/R&D expenses decreased by 33.10%/20.80% year on year to 0.088/0.138 billion yuan, respectively. 3) The company's net cash flow from 1H24 operating activities was 0.461 billion yuan, a year-on-year narrowing of 0.457 billion yuan. The company focused on cash flow management in 2024, and various expenses such as employee remuneration declined year-on-year.

Data elements drive incremental business development and drive AI and overseas business to shape new sources of growth. 1) The company has now formed a complementary data source system for satellite and drone data, and the PIE+ industry business is gradually connecting to the company's autonomous aerospace/aviation data sources. According to the company's 2023 annual report, the company plans to launch at least 12 commercial radar satellites in 2024 and continue to promote drone production. We believe that the company's independent data sources and remote sensing applications can be organically linked, opening up a new growth curve for cloud services and data services. 2) The company 1H24 is actively developing cross-border integration of next-generation information technology such as big models and artificial intelligence with Earth observation technology to build a Tianquan Big Model remote sensing cloud service platform to comprehensively support natural resources, emergency disaster mitigation, ecological environment protection, smart cities and other industries. 3) According to the company's semi-annual report, the company signed a “smart agriculture project” contract agreement with Pakistan in June '24. Projects in Thailand, Australia, Pakistan, Bangladesh, Bolivia and other countries are being implemented. We think going overseas may become a new source of growth for the company.

Profit forecasting and valuation

Considering the pace of recovery in downstream demand, we lowered the company's 2024e/2025e net profit by 24.0%/10.5% to 0.182/0.332 billion yuan. The current stock price corresponds to 2024/2025 18.9/10.4x P/E. Considering the downward shift in the industry valuation center, we lowered the target price by 43.6% to 15.53 yuan, corresponding to 22.3/12.2x P/E in 2024/2025, with a potential increase of 18%. We are optimistic about the company's advantage of independent data sources and maintain the industry rating.

risks

Market expansion falls short of expectations; cash flow improvement falls short of expectations; macroeconomic policies and environmental risks.