1. Net profit deducted from mother exceeds performance forecasts, and the company's fee control is progressing well

The company released its semi-annual report. 2024H1 achieved revenue of 1.842 billion yuan, an increase of 27.22% year on year; 2024Q2 achieved revenue of 0.979 billion yuan in a single quarter, up 31.98% year on year; H1 achieved net profit of 0.387 billion yuan, up 104.51% year on year; and realized net profit without return to mother of 0.289 billion yuan, an increase of 52.59% year on year. H1 exchange profit and loss fell sharply year on year in '24. After deducting the impact of exchange gains and losses, the company's net profit after deducting the impact of exchange gains and losses increased 113.26% year on year, and the degree of improvement in the company's operating quality exceeded expectations.

In terms of gross margin, the company's 2024H1 gross margin was 56.28%, an increase of 2.16 pcts over the previous year. By business, the gross profit margin of the company's 2024H1 traditional maintenance business was 62.70%, and the gross profit margin of the digital energy business was 38.86%. Compared with the gross margin for the full year of 2023, the gross margin increased by 0.88pct and 5.21pct respectively. We judge that the increase in gross margin of the new energy business is due to the increase in the share of DC charging piles.

In terms of cost ratio, the company's three fees were 37.16%, a year-on-year decrease of 3.04pct, verifying that the company's cost control results were remarkable. 2024H1's sales expense ratio was 13.63%, down 1.78 pcts year on year; the company's 2024H1 R&D expense ratio was 16.43%, down 0.67 pct year on year, and the share of capitalized 2024H1 R&D investment was 5.91%, down 4.22pct year on year. If capitalized R&D investment is taken into account, the company's overall R&D investment ratio of total revenue decreased by 1.57 pcts compared to the same period last year. We expect that due to the smooth progress of R&D projects such as charging modules, the R&D capitalization rate will decline while the cost rate will continue to be effectively controlled.

2. The diagnostic business Q2 accelerated, and the digital energy business grew steadily and rapidly by more than 30% month-on-month

By business, digital energy business revenue was 0.378 billion yuan, up 92.37% year on year. Digital maintenance business revenue is expected to be 1.438 billion yuan, up 18.04% year on year. Among them, comprehensive automotive diagnostic products achieved revenue of 0.608 billion yuan, up 1.78% year on year; TPMS achieved revenue of 0.329 billion yuan, up 33.83% year on year; ADAS calibration achieved revenue of 0.177 billion yuan, up 23.97% year on year; software Services achieved revenue of 0.211 billion yuan, a year-on-year increase of 26.32%.

Looking at the single quarter, 2024Q2's digital energy business revenue in a single quarter was 0.218 billion yuan, up 36.25% month-on-month, while 2024Q2's digital maintenance business revenue in a single quarter was 0.75 billion yuan, up 9.01% month-on-month. The company's digital energy business grew steadily and rapidly from month to month, ensuring that the company is on track to achieve its goals for the whole year.

3. Charging stations have great potential to go overseas, and the probability that the company will be affected by trade frictions is low

Tesla has drastically slowed the pace of expansion of the charging network, which will cause some of the charging pile market space to be relinquished.

According to the “US National Electric Vehicle Infrastructure” (NEVI) plan, US states must submit their electric vehicle infrastructure deployment plans to the Joint Office of Energy and Transportation by August 1, 2022 to increase demand for charging pile construction in North America. We believe that Daotong, as a scarce charging pile company already operating overseas, is expected to become a core beneficiary, and considering that it has already established a mature overseas supply chain system, the probability of being affected by trade frictions is low.

Profit forecast: The company's DC charging piles are accelerating and cost reduction and efficiency are progressing smoothly. We expect the company's revenue in 2024-2026 to 4.282/5.428/6.235 billion yuan, and net profit to mother of 0.525/0.78/0.913 billion yuan, corresponding to the current PE 20.25/13.64/11.65X, maintaining a “buy” rating.

Risk warning: New energy business development falls short of expectations, risk of exchange rate fluctuations, and policy risks.