1H24 results are in line with our expectations

The company announced 1H24 results: revenue of 1.088 billion yuan, -15.2% year on year; net profit to mother 0.087 billion yuan, -4.1% year over year; net profit after deducting non-return to mother 0.073 billion yuan, +4.5% year over year. Single 2Q24 performance:

Revenue of 0.645 billion yuan, -12.0% YoY; net profit attributable to mother 0.094 billion yuan, +16.20% YoY; net profit without return to mother 0.085 billion yuan, +17.66% YoY. The results were in line with our expectations.

Development trends

Revenue and profitability improved markedly in the second quarter. In the first half of 2024, demand in the machine vision and optical communication industry declined, and the company's performance was under pressure in the short term, but operations in the second quarter picked up significantly compared to the first quarter. 2Q24: revenue +45.40% month-on-month, net profit to mother was corrected month-on-month, gross margin exceeded 40% (40.50%), and the share of high-margin products increased; 2) The company implemented stricter cost control measures to further improve supply chain management and reduce procurement costs.

Fee control was also improved in the second quarter, and R&D investment continued to be high. 2Q24's sales/management/R&D/finance expense rates were 9.3%/6.43%/16.09%/-1.54%, respectively, -1.05/-0.86/+0.47/+0.41ppt. The overall period rate was -1ppt. The company continued to invest in R&D to strengthen core capabilities such as vision and AI algorithms.

Continue to consolidate the underlying technical capabilities of “AI+ Vision”, and achieve growth in overseas multi-site layouts. In the first half of 2024, the company 1) continued to expand self-developed cameras: released several cameras, forming a full range of 6 categories and 70+ models; 2) Continuously upgrade the algorithm: F.Brain was upgraded from version 1.0 to version 1.5. In the first half of 2024, the company's overseas business revenue exceeded 0.1 billion yuan, an increase of 10% over the previous year. Following the establishment of subsidiaries in the US, Singapore, Vietnam, etc., it has successively expanded to Europe, South America, North America, etc., and actively built an overseas marketing network through a combination of direct office sales and high-quality local agents.

Profit forecasting and valuation

Due to phased pressure on the machine vision and optical communications industry, we cut 2024/2025 net profit by 10.8%/11.7% to 0.183 billion yuan/0.229 billion yuan. The current stock price corresponds to the 2024/2025 price-earnings ratio of 42.5 times/34.0 times. Maintaining an outperforming industry rating, considering that the industry has large space, strong growth attributes, and the valuation center is expected to continue to rise after phased adjustments, maintaining a target price of 19.80 yuan, corresponding to 50.1 times the 2024 price-earnings ratio and 40.1 times the 2025 price-earnings ratio, with 17.7% upside compared to the current stock price.

risks

Downstream demand has declined; market competition has intensified; profitability is difficult to improve; technology research and development has failed.