Incident: On August 24, 2024, the company released its 2024 semi-annual report. In the first half of 2024, the company's total revenue was 3.636 billion yuan, down 5.25% year on year, and net profit attributable to shareholders of listed companies was 0.53 billion yuan, down 6.15% year on year. The performance was in line with market expectations.

The semi-annual results were in line with expectations, and the return to the mother was temporarily pressured by stock prices and minority shares. 1) In the first half of 2024, the company's total revenue was 3.636 billion yuan, down 5.25% year on year, and net profit attributable to shareholders of listed companies was 0.53 billion yuan, down 6.15% year on year. The performance was in line with expectations. Fluctuations in the company's performance are mainly due to fluctuations in the share price of Minde Electronics held by the company and the minority shareholding factors of the introduction of Shanhao's intelligent management team. Excluding these influencing factors, the company achieved net profit of 0.648 billion yuan in the first half of 2024, an increase of 21.36% over the same period last year, and business performance maintained a good growth trend. 2) Among them, revenue from merchant operations and value-added services was 1.674 billion yuan, -7.30%; electronic payment products and information reading products achieved revenue of 1.52 billion yuan, -0.80% YoY; and industry applications and software development and services achieved revenue of 0.435 billion yuan, or -11.88% YoY.

Smart terminal clusters account for 75% of overseas sales, and the digital industry cluster merchant structure is continuously optimized. 1) In terms of smart terminal clusters, overseas business revenue accounted for 75% of the total revenue of the cluster, and gross margin reached 40.90%, an increase of 2.59 percentage points over the previous year. The change in gross margin is mainly due to the combined impact of the downstream domestic terminal market, which is still in the clean-up stage of the industry, the company actively selects customers and businesses with better business continuity, and the company's continued layout in emerging regions for overseas business. 2024H1 achieved a total sales volume of more than 2.8 million units of products such as smart POS, smart cash registers, standard POS, new code scanning POS, and pan-smart terminals. Among them, smart POS shipments exceeded 0.6 million units, accounting for more than 85% of overseas business revenue. 2) In terms of industry digitalization, the gross profit margin was 44.46%, an increase of 2.06 percentage points over the previous year. Changes in performance are mainly due to compliance regulations that promote the optimization of industry flow and accelerate industry clearance. The company continues to accelerate the construction of a digital business ecosystem, further improving the quality of merchants, and increasing gross margin. In the first half of this year, the company achieved approximately 1.07 percent of payment service transactions. Among them, the number and amount of code scanned transactions increased by 2.6 and 4.6 percentage points, respectively, compared to the total number and amount of transactions over the same period last year.

The overall layout plan for the construction of digital China was released to open up digital yuan payment channels. 1) On the industry side, in April 2024, the National Data Administration organized a national data work conference and issued the “List of Key Work Points for Digital China Construction 2024”, which clearly accelerates the construction and expansion of digital infrastructure, and focuses on breaking through the blockages in the data resource cycle to improve the quality and efficiency of digital infrastructure. 2) In terms of digital yuan, the company has established cooperation with financial institutions such as China Construction Bank, Postbank, and Industrial Bank to open up digital yuan payment channels. By the end of June, the company had launched digital yuan services for nearly 0.015 million merchants, with nearly 1,000 monthly active merchants and about 0.1 million monthly transactions. As the application scenarios of digital yuan continue to expand, the company will continue to deepen cooperation with financial institutions, further expand merchant coverage, and promote its full popularization throughout the country.

Investment advice: According to key assumptions, the estimated revenue for 2024-2026 is 9.03/10.598/12.321 billion yuan, and net profit to mother is 1.295/1.639/2.037 billion yuan, respectively. Maintain a “buy” rating.

Risk warning: The risk of macroeconomic fluctuations, new business development falls short of expectations, and policy progress falls short of expectations.