incident. On August 28, the company released its 2024 semi-annual report. In the first half of 2024, the company achieved revenue of 0.285 billion yuan, a year-on-year decrease of 3.65%; realized net profit to mother of 34.9674 million yuan, an increase of 2.69% year-on-year; realized net profit of 28.8629 million yuan after deduction, an increase of 2.32% year-on-year.

24H1's revenue was under pressure in the short term, and the product structure was continuously optimized. Affected by macroeconomic fluctuations and a slowdown in the pace of demand from downstream customers in the access network business, the company's revenue situation in the first half of the year was under pressure in the short term. In the first half of 2024, the company achieved revenue of 0.285 billion yuan, a year-on-year decrease of 3.65%; realized net profit to mother of 34.9674 million yuan, an increase of 2.69% over the previous year. Looking at the second quarter of 2024 alone, the company achieved revenue of 0.162 billion yuan, up 5.52% year on year and 31.69% month on month; realized net profit of 19.8246 million yuan, up 4.54% year on year and 30.92% month on month. 2024H1, on the profit side, the company's gross margin was 29.24%, up 0.16pct year on year; net margin was 12.27%, up 0.76pct year on year. On the cost side, the company's expenses rate during the period was 19.19%, a year-on-year decrease of 3.13pct, and profitability and cost control capabilities were steadily improved. By business segment, the revenue share of the company's three major business areas of access network communication, power line carrier communication, and chip layout design fluctuated greatly in the first half of 2024. From the first half of 2023, they accounted for 70.6%/13.43%/15.97% of the main business revenue, respectively, and changed to 46.51%/34.09%/19.40%. As the company continuously optimizes the product structure, enhances the competitiveness of core products, and forwardly lays out new communication scenarios such as automotive and industrial, the company's future performance is expected to recover as soon as possible.

Insist on investment in R&D and expand product layout in emerging fields. 2024H1, the company invested 60.4362 million yuan in R&D, and the R&D cost ratio was 21.20%. The company relies on deep technology accumulation in the field of communication chips, forwardly lays out emerging application fields such as industrial interconnection and new short-range wireless, and actively invests in the development of high-speed industrial bus EtherCAT slave station control chips and new short-range wireless Starflash SLE chips. The high-speed industrial bus EtherCAT slave control chip developed by the company integrates an ESCcore module authorized by Beifook Automation. Among them, it is used for industrial robots and servo motor drives and automated production lines and distributed field I/O modules. It has now been shipped in small quantities to customers in the industrial control field, and is expected to replace similar imported chip products. In the field of new short-range wireless communication, compared with traditional short-range wireless technology, Starflash technology uses the latest 5G key technology such as Polar codes and innovative concepts such as central scheduling. It has six core technical capabilities of low latency, high throughput, high concurrency, high reliability, anti-interference, and precise positioning, and can be widely used in smart cockpits, smart terminals, smart homes, etc.; products such as wireless mice, keyboards, and collar clip microphones equipped with the company's Starlight chips and solutions are expected to gradually be introduced to the market in the second half of this year. As users' demand for smart wireless terminal experiences is upgraded, the product is expected to gain a larger market share. We believe that with the accelerated development of localization alternatives, the company continues to increase investment in R&D, consolidate the technical strength of its core business, and forwardly lay out emerging application fields such as industrial connectivity and new short-range wireless communication, and the company's performance is expected to resume growth in the future.

Profit forecasting and investment ratings. We expect the company's 2024-2026 net profit to be 0.072/0.094/0.113 billion yuan, and the 2024-2026 EPS will be 0.9/1.17/1.41 yuan, respectively. The current stock price corresponds to 54/42/35 times PE, respectively. In view of the company's forward-looking layout in emerging fields such as industrial connectivity and new short-range wireless communication, we continue to be optimistic about the company's future performance development and maintain a “buy” rating.

Risk warning: Industry competition increases risk; risk of market development falling short of expectations; risk of R&D progress falling short of expectations; risk of loss of core technical personnel and leakage of core technology.