1H24's secure profit continues to rise steadily. It is expected that in the future, the volume of new orders signed will be announced electronically in the 2Q24 performance report, 1H24 revenue of 27.08 billion yuan (yoy +0.24%), net profit not returned to the mother of 0.64 billion yuan (yoy +61.5%), gross margin of about 15.8%, yoy +2.4pp, qoq-0.9pp. We see that the profitability of the company's safety business continues to recover steadily. The gross margin of the 1H24 car safety business is about 14.3%, yoy +3.6pp; in the automotive electronics business, despite intensifying competition, the company's gross margin remains at about 19.3%, yoy -0.6pp. The company's new orders have grown rapidly in the past two years. 1H24 has signed new orders of about 50.4 billion yuan, compared to 42.2 billion yuan in the same period last year. We are optimistic that the company's integration and efficiency improvements in European, Mexican and other factories will restore profits in the safety business, as well as the development layout of V2X, 800V, cockpit, and smart driving domain control. Based on the SOTP valuation, considering that the company's high overseas share is more affected by global macroeconomic uncertainty and weak European automobile production, it is predicted that the automotive electronics/safety business will be 0.64/0.42EPS in 2024, corresponding to 21.2/15.4X PE (each with a 10% discount compared to the average value of the company's PE), and a target price of 20.03 yuan will be given to maintain the “buy” rating.

1H24 review: Security business repair slightly exceeded our expectations, and gross margin increased significantly. Looking at the 2Q24 single quarter, revenue was 13.8 billion yuan (yoy +0.07%), gross margin was about 16.1%, qoq+0.6pp. 1H24's domestic gross margin is about 18.8%, yoy+2.74pp, foreign gross margin is about 15.0%, yoy+2.24pp. There is still plenty of room for improvement from 20.1/ 16.9% of the highest gross profit period before the epidemic. We see that improving the profitability of the safety business is the company's core logic. By improving product technology, capacity transfer, employee structure optimization, raw materials and logistics cost management, etc., the company's safety business gross margin has had remarkable restoration results since 2023. The gross margin of the 1H24 security business is about 14.3%, yoy +3.6pp, higher than our previous expectations for 2024 (14%), and we are optimistic about the momentum for subsequent repairs.

2024 outlook: Strong safety business orders, focusing on the follow-up catalysts of intelligent connectivity. We see: (1) Automobile Safety: 1Q24 has obtained about 23.9 billion yuan in automobile safety orders, of which automobile safety orders have reached more than half of the annual order for 23 years (43.4 billion yuan). 1H24 has now revealed that new orders have reached about 50.4 billion yuan, compared to 42.2 billion yuan in the same period last year, and there is still a significant increase. (2) Automotive electronics: The company has begun a period of rapid deployment in the field of cockpit domain control. There are plenty of orders for 800V high voltage fast charging and intelligent connectivity, and it is expected that the release cycle will begin in 2025. Furthermore, as Vehicle Road Cloud begins to enter the bidding process on a large scale, we believe that the company is hopeful to obtain more related orders in the field of intelligent connectivity.

Target price is $20.03, maintaining a “buy” rating

We are optimistic that the company, as a leading enterprise in the field of automotive electronics and vehicle safety, will benefit from the development opportunities of the electrification/intelligent industry and high barriers to passive safety, and achieve continuous improvement in performance. We forecast 24/25/26 revenue of 57.77/63.19/68.44 billion yuan, net profit of 1.49/1.98/2.37 billion yuan, and give the automotive electronics/safety business 21.2/15.4X PE in 2024, corresponding to a target price of 20.03 yuan.

Risk warning: Profitability recovery is less than expected; overseas car companies' intelligent progress is slow.