Neusoft Group's 1H24 revenue was +10.5% year over year, in line with market expectations. The company announced 1H24 results: revenue increased 10.5% year over year to 4.299 billion yuan; net profit to mother +3.4% year over year to 0.098 billion yuan; net profit after deducting non-net profit +48.2% year over year to 0.04 billion yuan. Single quarter 2: Revenue increased 10.5% year over year to 2.469 billion yuan, up 34.9% month on month; net profit to mother +3.4% year on year to 0.093 billion yuan; net profit after deducting non-net profit -9.4% year over year to 0.049 billion yuan, changing from negative to positive month.

The company's performance is steady and in line with our expectations and the market.

Development trends

Revenue grew steadily, and gross margin improved across the board. In March of this year, the company fully launched major strategic changes and launched an intelligent solution strategy to achieve the milestones set at the beginning of the year. 1H24's revenue achieved steady growth. By industry, due to terminal demand, healthcare and social security revenue fell 8.2% year on year to 0.69 billion yuan; smart car/smart city/enterprise connectivity and other revenue increased 7.6/17.0/26.6ppt year to 1.73/0.706/1.173 billion yuan, all of which achieved steady growth. On the gross margin side, 1H24's comprehensive gross margin was +0.8ppt to 30.4% year over year. Among them, the gross margin of independent software, product and service/system integration/property advertising increased by 1.0/0.2/0.8ppt to 31.3%/12.4%/72.5%, respectively. The total cost of 1H24 was +5.4% to 1.037 billion yuan, and the sales/management/R&D expenses ratio was -1.0/+1.0/ -1.2ppt to 5.3%/8.5%/10.3% year-on-year, respectively. In 1H24, the net operating cash flow outflow narrowed from 0.339 billion to 0.183 billion yuan year-on-year, and the quality of cash flow gradually improved.

The number of new contracts signed continues to increase, and the performance of fixed-point automobile orders and overseas business is impressive. In the field of smart car connectivity, the company continues to receive targeted orders from mainstream domestic car manufacturers such as BYD, Geely, and Changan. 1H24's overall shipment volume increased by more than 25% over the same period last year. In terms of overseas business, the company is developing a global cockpit platform for overseas models of car manufacturers to help mass produce and market models related to many customers such as Smart, Extreme Krypton, and Great Wall, and also undertakes overseas car manufacturer projects such as the BMW T-Box; 1H24 added 70% year-on-year increase in fixed amounts, and overall shipments increased by more than 50%, of which Nagivi cockpit software shipments increased by about 150%. In the healthcare sector, 1H24 has signed more than 10 new 10 million yuan projects covering the key areas of “smart hospitals”, adding 9 new ones, and providing services to more than 50 medical community customers. The company focuses on promoting the intelligence and data valorization of solutions, strengthening research and development using AI, big data and other technologies, developing its own “smart” general language model and completing the filing. The AI product family continues to expand, implement in many customer scenarios, and continue to implement innovative applications of data value.

Profit forecasting and valuation

Keep outperforming industry ratings and profit forecasts largely unchanged. Maintaining a target price of 10.6 yuan (based on the 2024 SOTP valuation), the current stock price corresponds to 33/24x 2024/25e P/E, with 25% upside.

risks

The expansion of new orders fell short of expectations; innovative business subsidiaries continued to lose money.