Incident: The company released its 2024 semi-annual report. In 2024 H1, the company achieved revenue of 0.393 billion yuan, an increase of 1.98%; realized net profit to mother of 0.057 billion yuan, an increase of 21.88% year on year; deducted non-net profit of 0.043 billion yuan, an increase of 14.26% year on year. In 2024, Q2 achieved operating income of 0.211 billion yuan, up 0.44% year on year and 15.85% month on month; realized net profit of 0.027 billion yuan, down 3.87% year on year and 11.87% month on month; realized deducted non-net profit of 0.024 billion yuan, up 3.49% year on year and 22.23% month on month.

24H1 net profit increased steadily year on year, and profitability improved: in 2024, the company's net profit achieved steady year-on-year growth. The main reason is that the company adheres to technological innovation and product differentiation and diversification, strives steadily around development strategy plans and annual business goals, and takes multiple measures to meet market challenges. Meanwhile, in 2024, H1's gross margin was 25.22%, +1.03pcts year on year; the company's net interest rate was 14.85%, +2.31pcts year on year, and profitability increased year on year. In terms of expenses, in 2024, the company's sales, management, R&D and financial expenses rates were 1.93%/6.23%/5.08%/-2.14%, respectively, with year-on-year changes of +0.02/-0.77/+0.09/+0.46pct, respectively. Among them, the financial expense ratio and amount both showed year-on-year increases, mainly due to a decrease in interest income.

Strengthen technical research and development capabilities, and improve the quality and quantity of high-end products: In 2024, the company optimized and upgraded the structure of high-end products. For high-precision TCXO, OCXO and other active products, RTC modules and other products, on the basis of completing early product customization development and mass production, the company successfully developed high-precision TCXO series products (overall frequency deviation ≤±0.1 PPM after compensation), while further strengthening the capacity building of active product R&D laboratories; on the basis of expanding production in supporting active workshops, the company increased production equipment related to high-precision products, Efforts to address technical difficulties such as the TCXO temperature compensation algorithm have enhanced independent research and development capabilities for some key equipment to match the supporting needs of domestic products in terms of civil instrument equipment standards, communication network standards, and power network standards. At the same time, the company has always refined semiconductor lithography process technology, and is actively promoting the optimization of small-size characteristics of lithography kHz and stable mass production of high-end products such as ultra-high frequency and ultra-small size products. Among them, the company's high-base frequency lithography chips have been industrialized, and mass production of ultra-high frequency and ultra-small size products such as 76.8 MHz, 80 MHz, 96 MHz, 125 MHz, 156.25 MHz, 212 MHz, and 285 MHz has been achieved.

Seize downstream demand opportunities and the automotive business is developing rapidly: According to Linkedin's forecast, the global NEV market is about 65.57 billion US dollars in 2024, and the global NEV market is expected to grow to 117.43 billion US dollars in 2031. The CAGR of the global NEV market is about 8.5% in 2024-2031. Benefiting from the acceleration of the trend of automobile intelligence, electrification and connectivity, the demand for high-grade crystal oscillators in automotive electronic systems is increasing, and the company's crystal products have broad room for growth. As of 2024 H1, the company has developed more than 1,000 product models, covering all products such as MHz/kHz, passive/active (including TCX O, SPXO, RTC, etc.); the company's automotive products are equipped with many OEMs and well-known Tier 1 companies at home and abroad, and their application scenarios are mainly in the fields of cockpit, body, smart driving, chassis and power. At the same time, the company's ultra-small size, more difficult, and more complex technology and process 76.8 MHz high-frequency thermal crystal resonators have passed the SA522 and SA525 certifications for Qualcomm's automotive-grade 5G platforms.

With the steady progress of preparations and construction of the company's independent production line and CNAS laboratory, as well as the gradual strengthening of customer sedimentation and product number reserve layout. The company's competitive advantage is expected to be further strengthened.

Maintaining the “gain” rating: The company is mainly engaged in R&D, production and sales of quartz crystal frequency components. The company's products are widely used in mobile terminals, communication equipment, automotive electronics, the Internet of Things, industrial control, modules, optical communication, power and energy, medical electronics, etc. In 2024 H1, the company's vehicle specification products were equipped with a number of OEMs and well-known Tier 1 customers at home and abroad. Mass production of ultra-high frequency and ultra-small size products such as 76.8 MHz, 80 MHz, 96 MHz, 125 MHz, 156.25 MHz, 212 MHz, and 285 MHz was also achieved. Thanks to the acceleration of the global informatization and digitization process, the gradual spread of 5G+ and the Internet of Things, the rise of the wave of artificial intelligence, the promotion of automotive electronics, electricity and energy, industrial equipment, smart home, medical electronics and other markets, AI technology innovation drives the expansion of the electronics industry. Global demand and market size of quartz crystal frequency components are expected to show a steady growth trend, and the company's crystal vibration business is expected to continue to benefit, and the company's performance growth space is expected to open up further. Considering that the industry's boom in the first half of the year fell short of expectations, we lowered our profit forecast for the full year. We expect the company's 2024-2026 net profit to be 0.125 billion yuan, 0.172 billion yuan, and 0.22 billion yuan respectively, EPS 0.32, 0.44, and 0.57 yuan/share, respectively, and PE 40X, 29X, and 23X respectively.

Risk warning: downstream demand falls short of expectations; risk of macroeconomic fluctuations and industrial policy changes; technology research and development falls short of expectations; market competition increases risk.