Industrial pattern adjustments combined with drastic changes in the industry pattern led to a major decline in the company's performance. In 2024, H1 achieved revenue of 4.217 billion yuan (yoy -39.62%), net profit to mother of 70.3711 million yuan (yoy -113.37%), and deducted non-net profit of 95.7816 million yuan (7771.16 in the same period last year). Among them, Q2 achieved revenue of 2.7 billion yuan (yoy -22.40%, qoq +77.84%) and net profit to mother of 0.228 billion yuan (yoy -18.88%, qoq +176.38%). Considering that the company is facing further industrial adjustments and increased competition, we expect the company's EPS for 2024-2026 to be 0.22, 0.30, and 0.34 yuan, respectively (previous value of 0.37, 0.51, and 0.64 yuan in 2023-2025). Comparatively, iFind agreed that the average PE value in 24 was 37.7 times, giving the company 37.7 times PE in 24, with a target price of 8.40 yuan (previous value of 14.21 yuan), and downgraded to an “increase in holdings” rating.

The anti-counterfeiting tax control business has declined a lot. Waiting for the company's performance to reach an inflection point. According to the company's 24-year report, the company's revenue from the anti-counterfeiting tax control business declined a lot due to factors such as deepening adjustments in the industrial pattern and drastic changes in the industry pattern. In addition, businesses such as the smart industry and the Internet communication industry are also facing problems such as increased market competition, and the scale of business has declined. We believe that the company 24H1:

1) In the digital government sector, it won bids for nearly 200 projects in the Xinchuang market in key industries; 2) In the field of enterprise digitalization, large enterprises have a market share of more than 50% in digital electronic billing. With the completion of the deepening and adjustment of the industry and the gradual improvement of the industry pattern, an inflection point in the company's performance can be expected.

AI empowers finance and taxation, and the “Ai”, “Letter” and “Nuo” product systems were further improved. In the first half of '24, the company released the “Aisino Xinnuo GPT” financial and taxation industry model, showcasing the latest achievements in the field of “AI+ Finance and Taxation”. At the same time, we will promote core technology research such as technical verification of the blockchain-based digital enterprise model, complete the development of the alpha version of the intelligent fiscal and taxation MaaS platform, and form a “1+1+N” fiscal industry model product system plan. We believe that the company actively embraces AI technology. With the continuous improvement and implementation of AI+ fiscal application logic, technical advantages are expected to help the company continue to expand its customers.

Sales/management/R&D expenses all declined. Cash flow decreased in the first half of '24 due to the decline in high-yield business. In terms of expenses, the company's sales expenses decreased by 16.27% as the scale of the business changed; management expenses were reduced by 12.07% due to cost control; and R&D expenses decreased by 16.47% as R&D labor costs decreased. The sales/management/R&D expense ratio was 8.77%/11.43%/9.46%, +2.44pct/+3.58pct/+2.62pct year-on-year. In terms of cash flow, net operating cash flow was -1.211 billion yuan, -86.09% year-on-year, mainly due to a decline in revenue from high-return anti-counterfeiting tax control services, which led to a corresponding year-on-year decrease in cash flow.

Risk warning: Downstream demand falls short of expectations, and commercialization progress falls short of expectations.