Incident: On September 18, Lingyi Zhizao issued an announcement to grant stock options for the first time to the 2024 Stock Option Incentive Program incentive recipients, granting 188.65 million share options to 1,412 incentive recipients, with an exercise price of 4.46 yuan/share. The first granted stock options accounted for about 2.7% of the total share capital of 7008.1778 million shares on the day the draft incentive plan was announced, accounting for 80% of the total share options to be granted under the incentive plan.

The first equity incentive was granted, and the core backbone was bundled to help the company develop in the long term. The company's initial equity incentives were awarded to 1,412 core executives, which helped attract and retain talents and help the company develop in the long term. The performance assessment requirements are based on income or net profit attributable to mother in 2023, and the year-on-year growth rate of revenue or net profit to mother in 2024-2026 was 10%/20%/30%, respectively, corresponding revenue of 37.5/40.9/44.4 billion yuan, or net profit due to mother of 2.3/2.5/2.7 billion yuan. In terms of share payment fees, based on the closing price of 6.04 yuan on the initial grant date, the total amount to be amortized is approximately 0.403 billion yuan, and the estimated amortization for 24/25/26/27 is 0.085 billion yuan/0.205 billion/ 0.084 billion yuan/0.029 billion yuan, respectively.

Heat dissipation+battery+fast charging resonance to create an AI terminal hardware manufacturing platform. The company actively lays out the AI terminal hardware field. By business, 24H1, the company's AI terminal and communications business achieved revenue of 17.64 billion yuan, an increase of 29.80% over the previous year, and a gross profit margin of 16.53%. Among them, revenue from mobile phones, PCs, tablets, MR, and robotics-related products grew rapidly, and the revenue scale of some new products increased dramatically. Revenue from terminal-related components such as carbon fiber products, cooling modules, and battery modules went hand in hand with gross profit; in 24H1, the company's automotive business achieved revenue of 1.018 billion yuan, an increase of 42.90% over the previous year. In 24H1, the photovoltaic energy storage business achieved revenue of 0.399 billion yuan, a year-on-year decrease of 56.35%, mainly affected by factors such as the phased decline in customer orders.

The energy consumption of AI terminals has increased, and heat dissipation is just what is needed. The company's cooling products cover the entire industry chain, including ultra-thin heat dissipation plates, heat dissipation components, heat dissipation modules, heat dissipation plates, liquid cooling systems, graphite sheets, thermal conductive gaskets, thermal conductive adhesives and VC heat pipes. The company's various ultra-thin VC heating plates, such as copper, stainless steel, pure titanium, etc., and cooling solutions are installed in various high-end mobile phone models and mass-produced and shipped.

Apple COO's visit to China highlighted supply chain value. According to Interface News, on July 25, Jeff, Apple's chief operating officer, visited China to inspect one of the core suppliers: Lingyi Intelligent Manufacturing. As one of Apple's core suppliers, Lingyi provides Apple with thousands of modular components and components, involving products such as Mac, iPhone, iPad, Apple Watch, AirPods, and Apple Vision Pro. The company actively builds an AI terminal hardware manufacturing platform, cooperates with Apple for self-research, and continues to improve its supply chain position. As of 24H1, the company has obtained 1,908 patents, including 292 invention patents, 1,562 utility model patents, 54 design patents, and 6,090 R&D personnel.

Investment advice: The company's net profit for 24-26 is estimated to be 2.005/3.243/4.156 billion yuan, corresponding to the current PE price of 21/13/10 times. We are optimistic that the company's position in Apple's supply chain continues to improve, the long-term upward trend is clear, and the “recommended” rating is maintained.

Risk warning: downstream demand falls short of expectations; industry competition intensifies; new business development falls short of expectations.