Investment event: Jingwei Hengrun released the 2024 semi-annual performance report. During the reporting period, the company achieved a total operating income of 2.027 billion yuan, a year-on-year increase of 19.43%; realized net profit to mother of -0.333 billion yuan, a year-on-year decrease of 274.35%; and realized deducted non-net profit of -0.387 billion yuan, a year-on-year decrease of 253.37%.

Q2 Profits are under pressure, and R&D investment remains high. Looking at the Q2 situation, the company achieved a total revenue of 1.138 billion yuan, a year-on-year increase of 18.72%; realized net profit to mother of 0.142 billion yuan, a year-on-year decrease of 9029.24%; and realized deduction of non-net profit of -0.167 billion yuan, a year-on-year decrease of 886.14%. Profit pressure is mainly due to the company's continued efforts in key technical fields such as intelligent driving, body domain control, new energy and power, chassis domain control, self-developed tools, and L4 business. Higher R&D investment had a certain impact on current profits. At the same time, the company's 24H1 gross margin was 22.56%, down from 27.60% in the same period last year due to factors such as changes in customer and business structure, changes in product sales prices, changes in raw material purchase prices, exchange rate fluctuations, and degree of market competition.

With targeted implementation, the automotive electronics business is expected to grow rapidly. The company's business developed rapidly during the reporting period. Looking at automotive electronics products: 1) comprehensive layout of intelligent driving products, providing solutions with rich configurations; 2) comprehensive layout of smart cockpit products, from the sensing end to the presentation end; 3) increasing the central computing platform and regional controller development network for body and comfort products to mass produce physical area controllers; 4) TBox continued iterative research and development in intelligent connected products. The Entry series has completed targeted and mass-produced C-EPS, DP-EPS all-in-one chassis control products; 5) C-EPS all-in-one, DP-EPS all-in-one, and R-EPS chassis control products Both the all-in-one machine and the fully redundant R-EPS have been successfully mass-produced, and rear-wheel steering products have been fixed. The cost of contract execution in the company's inventory is high, with a book value of 0.982 billion yuan. This is mainly due to the long execution and acceptance cycle of businesses such as automotive electronics development services, R&D services and solutions, and overall solutions for high-level intelligent driving. The revenue side of related projects is expected to grow rapidly in the future.

R&D services and solutions are fully self-developed, and software empowers the “trinity” business development. 1) Vehicle electronic and electrical development and testing: On the basis of the original SOA architecture development capabilities, the company has established business capabilities such as vehicle safety development and testing, complex software integration, etc.; 2) Simulation test equipment and laboratory development: the company launched a full-stack self-developed virtual simulation testing solution to further consolidate the company's leading position in this business; 3) Enhanced middleware: upgrade information security software modules and self-developed hardware security module HSM firmware drivers. Related products can be adapted to different IPs such as Qixin, Smartchip, Yuntu, Isway, and Xinchi Domestic core chip. 4) Independent tool business: The main software series products INTEWORK, ModelBase, and OrienLink have all achieved customer base expansion and application, and some products have been applied to customers such as Xiaomi, Chery, and Sinotruk.

Investment advice: As the company continues to increase investment in R&D, and gross margin is under pressure due to macroeconomic factors, there is some pressure on the profit side. We believe that as downstream demand gradually recovers and new products are launched at an accelerated pace, the company's performance is expected to accelerate and reach an inflection point. Therefore, we adjusted our profit forecast and expect the company to achieve revenue of 57.76/72.90/ 9.172 billion yuan in 24/25/26 (6.244/8.139 billion yuan before 24/25); considering fluctuations in the company's gross margin and high R&D expenses during the investment period, we expect the company to achieve net profit of 0.141/0.117/0.334 billion yuan in 24/25/26 (0.21/0.336 billion yuan 24/25 ago) . As a leader in automotive electronics, the company has a complete product line and rich technology accumulation. As R&D investment is gradually transformed into corresponding results, there is plenty of room for future business growth. We maintain the company's “buy” rating.

Risk warning: Targeted projects fall short of expectations, insufficient downstream demand, falling inventory prices, falling autonomous driving policies, falling short of expectations, intensifying industry competition, etc.