Increased R&D investment puts pressure on profits and maintains a “buy” rating
Zhongke Chuangda released its quarterly report. In Q1 of 2024, it achieved revenue of 1,178 billion yuan (yoy +1.01%, qoq -13.75%), net profit of 907.591 million yuan (yoy -46.10%, qoq +164.92%), deducting non-net profit of 854.087 million yuan (yoy -46.23%). Net operating cash flow was 164 million yuan, or -50.21% YoY. The decline in profit was mainly due to increased investment in R&D, and the decline in net operating cash flow was mainly due to a decrease in sales payments and an increase in employee-related expenses and other operating cash payments. We expect the company's 2024-2026 EPS to be 1.33, 1.75, and 2.26 yuan, respectively. Comparing the company's 2024E average valuation of 47.2xPE (Wind agreed), the company was given 47.2xPE in 2024, corresponding to a target price of 62.65 yuan, maintaining a “buy” rating.
The continuous iteration of end-side smart products is expected to provide a driving force for revenue growth. The company has a good business foundation in terminal scenarios such as smartphones, smart cars, and the intelligent Internet of Things. 24Q1 released the “Rubik Lite DK”, an integrated software and hardware end-side AI development kit, which includes high-performance hardware and a software SDK that supports a variety of mainstream end-side models and provides rich middleware options. In terms of hardware, the product supports three different levels of processors, including the Qualcomm QCS8550 chip, and is expected to be thoroughly applied in scenarios such as smart robots, intelligent connected cars, and smart hardware in the future. Furthermore, the company is actively promoting the implementation of end-side AI applications and creating applications such as Rubik's Cube intelligent legal assistant. We believe that the company's products in the field of end-side intelligence will continue to be iterated, or provide a growth engine for the company's revenue.
Vehicle OS is about to be released, and product competitiveness is expected to continue to improve
The overall gross margin of the 24Q1 company was 39.82%, a year-on-year change of 1.01pct. The sales/management/R&D expense ratio was 4.30%/9.62%/21.37%, +0.96pct/+0.31pct/+5.11pct year-on-year. As of the end of 24Q1, development expenditure was 400 million yuan, an increase of 60.3% over the end of 23. The company continues to make strategic investments in innovative directions such as vehicle operating systems, industrial robots, and end-side intelligence, increasing investment in R&D and sales. In the field of smart cars, according to the company's official website, the 2024 Beijing Auto Show will launch the world's first cross-domain integrated next-generation vehicle operating system product. We believe that based on the technical foundation accumulated in the field of operating systems, the company continues to promote basic software product upgrades. As R&D projects are gradually commercialized and commercialized, it is expected that the company's product competitiveness will be further enhanced.
Focus on the implementation of end-side intelligence, and the new growth curve is gradually opening up. The company has deep product, technology, and team accumulation in the field of operating systems. With intelligent operating system technology as the core, it focuses on end-side intelligent products and applications to empower the intelligent industry. We believe that as end-side intelligence continues to be integrated with scenarios such as mobile phones, laptops, XR headsets, automobiles, and the Internet of Things, the company is expected to open up a new growth curve, including a second growth curve (existing business+end-side intelligence) and a third growth curve (end-side intelligence+innovative business).
Risk warning: downstream demand fluctuates; technology implementation falls short of expectations.