Main points of investment

Event: Mercedes-Benz Information released semi-annual report 2023. In the first half of 2023, the company achieved operating income of 1.065 billion yuan, down 55.17% from the same period last year; net profit from home was 17.6798 million yuan, down 88.93% from the same period last year; and net profit from non-return was 16.2523 million yuan, down 89.65% from the same period last year. In the second quarter of 2023, the company achieved operating income of 679 million yuan, down 37.63% from the same period last year; net profit from home was 348600 yuan, down 99.25% from the same period last year; and deducted non-return net profit from-2.4279 million yuan.

Smart home business is under pressure for a while, and mobile reading enhances content storage. 1) Revenue side in the first half of 2023:

In the first half of 2023, the company's broadband network terminal equipment revenue was 374 million yuan, down 59.88% from the same period last year, up 47.65% from the same period last year. Mobile reading business revenue was 479 million yuan, down 4.61% from the same period last year. 2) cost side in the first half of 2023: in the first half of 2023, the company's gross profit margin was 9.82%, which was 2.75pct lower than the same period last year; the sales expense rate was 1.10%, an increase of 0.71pct over the same period last year; the management expense rate was 2.88%, an increase of 1.41pct over the same period last year; and the R & D expense rate was 2.65%, an increase of 1.49pct over the same period last year. Business performance: 1) Smart Home Business: the company comprehensively upgraded and iterated the broadband network terminal equipment such as intelligent home gateway and intelligent set-top box, and completed the base station energy storage pilot project in August. 2) 5G communication service: the company's 5G communication equipment mainly includes 5G base station antenna, 5G small base station and OTN equipment. The winning bid amount of the company's 5G communications business is about 1.077 billion yuan (including tax). 3) Mobile reading business: the company continues to strengthen cooperation with copyright holders such as publishers, media and individual authors, continuously enhance content reserves, and will further strengthen cooperation with third parties and continue to strengthen channel construction.

"Communication operation + content supply" two-wheel drive, meta-universe in-depth layout to lead the development. 1) accelerate the penetration of smart families: the company mainly focuses on smart family business, deeply ploughing the market of communication operators, and makes efforts at the same time in product research and development and market expansion. Actively layout base station energy storage business to build an open and shared distributed energy storage cloud platform; 2) sustainable development of 5G communications: the company continues to invest in the research and development of 5G communications products supplemented by 5G communications services to speed up the strategic layout in the field of 5G communications; 3) content storage + channel construction: the company continues to enhance content storage and strengthen channel construction; 4) in-depth layout of metacosmos:

The company cuts into meta-universe from the field of communication operators, and uses AIGC as a technology entrance, which brings more market opportunities for the company.

Profit forecast: smart family + 5G communication business has a solid foundation, the reserve of unexecuted orders is rich, and the layout of meta-universe + AIGC is worth looking forward to. Considering the short-term pressure on the smart family business in the first half of the year, we adjust our profit forecast and estimate that the company's 2023-2025 net profit will be 2.01max. The PE of the previous share price (September 01, 2023) is 14.4 times that of the previous stock price (September 01, 2023), maintaining the "overweight" rating.

Risk hints: the risk of product price decline or fluctuation, the risk of iteration and loss of technology renewal, the risk of raw material price fluctuation, the risk of recovery of accounts receivable, the risk of product quality control, the risk of increasing inventory balance, the risk of intensified market competition, the risk of cost management, etc.