Earnings in the interim report declined markedly. The company released an interim report. 2024H1 revenue of 0.84 billion yuan (YoY -17.7%), net profit loss of 0.185 billion yuan, profit for the same period last year was 10.87 million, deducted from non-net profit of -0.197 billion, -29 million for the same period last year, and net operating cash flow was -0.46 billion, an improvement from -0.92 billion in the same period last year. Looking at the 24Q2 single quarter, the company's revenue was 0.62 billion yuan (Yoy -17%), while net profit attributable to mother and losses of 34.01 million yuan and 45.24 million yuan, respectively, after deducting non-net profit, were both significantly lower than in the same period last year.

The size of the team continued to shrink, and expenses began to drop. Facing changes in the macro environment and demand side, the company began adjusting and optimizing the team in the second half of last year, drastically reducing sales staff at city and county branches, and also reducing R&D and management personnel. The total number of employees in the company dropped from 3780 in 23H1 to 3,364 at the end of 23, and further dropped to 2,666 in 24H1, a year-on-year decrease of nearly 30%. After the scale of personnel was reduced, the total sales, management, and R&D expenses of the company in 24Q2 were 0.155 billion, a significant decrease from 0.222 billion in 24Q1 and 0.249 billion in 23Q2. We believe that the company's streamlining of personnel, reducing the declining market layout, and focusing more on key industry markets such as special industries and emergency response are in line with future trends, and are necessary adjustments for the company to reverse losses and develop healthily in the future.

The company continues to adhere to the integrated layout of upstream, middle and downstream. The company will adhere to the business layout of “upstream autonomous data - midstream autonomous platform - downstream scale application”. At the upstream data level, the InSAR distributed radar satellite launched by the company in 2023 has been in orbit for more than a year. Coupled with drone low-altitude remote sensing, it has formed a comprehensive data collection system.

Meanwhile, the midstream “PIE-engine” platform has been upgraded from a single multi-source remote sensing data processing tool to a next-generation smart Earth platform, supporting the implementation of applications in more than 10 industries such as downstream emergency response and natural resources, and actively expanding satellite application services for special fields and emergency industries.

Demand for industry applications has begun to improve. 24H1's core PIE+ industry revenue was 0.794 billion, an increase of about 21% over 0.656 billion in the same period last year, but space infrastructure planning and construction, and cloud product service lines all declined sharply. We believe that with the implementation of treasury bonds and other projects and large-scale development of satellite data services, the company's overall revenue growth rate is expected to rebound. Furthermore, overseas markets have also become the company's key expansion direction and are making positive progress.

Since changes in the macro environment exceeded our expectations, the company's net profit due to 2024-2026 was lowered to -0.144 billion, 0.153 billion, and 0.304 billion (the original 24-25 forecast was 0.587 billion, 0.833 billion). Referring to comparable companies, we believe that the company's reasonable valuation level is 23 times the price-earnings ratio of 2025, and the corresponding target price is 13.51 yuan, downgraded to additional holdings.

Risk warning

Downstream customer demand continues to be sluggish; risk of poor overseas market expansion; risk of the company falling short of expectations;