Incident: On August 16, 2024, the company released its semi-annual report. 1H2024 revenue was 41.209 billion yuan, up 9.68% year on year, net profit to mother was 5.064 billion yuan, down 5.13% year on year, after deducting non-return net profit of 5.243 billion yuan, up 4.11% year on year.

2Q2024 operations are steady, and repurchases and cancellation of shares and exchange fluctuations affect profit levels: 2Q2024, the company's revenue was 23.392 billion yuan, up 9.46% year on year, net profit to mother was 3.148 billion yuan, down 10.73% year on year, and net profit after deducting non-return to mother was 3.483 billion yuan, up 0.02% year on year. During this period, the company terminated the implementation of the 2021 restricted stock incentive plan and repurchased and cancelled all restricted shares that had been granted but not yet unlocked, resulting in a one-time equity payment fee of 0.471 billion yuan, which is a non-recurring profit and loss. At the same time, due to exchange rate fluctuations, the company's exchange losses increased. 2Q2024's financial revenue was 0.213 billion yuan, a decrease of 0.304 billion yuan from the same period last year (0.517 billion yuan). After deducting these factors, the company's actual operating profit remained steady in 2Q2024.

The main domestic business of 1H2024 is steady, and the innovative business is growing rapidly: 1) The main domestic business is steady, with PBG under pressure, with revenue of 5.693 billion yuan, a decrease of 9.25%; EBG grew, with revenue of 7.489 billion yuan, an increase of 7.05%; SMBG was stable, with revenue of 5.789 billion yuan, an increase of 0.64%. 2) The main overseas business is resilient, and overseas demand is stable. The revenue from the main overseas business was 11.441 billion yuan, an increase of 15.46%. 3) The innovative business grew rapidly, with revenue of 10.328 billion yuan, an increase of 26.13%, accounting for 25.06%, and gross margin increased 1.94 pcts year over year, including storage business of 1.312 billion yuan, growth of 65.51%, automotive electronics business of 1.606 billion yuan, growth of 60.35%, thermal imaging business of 1.83 billion yuan, increase of 24.05%, robotics business of 2.744 billion yuan, increase of 20.45%, smart home business 2.449 billion yuan, an increase of 12.17%. The main industries such as Fluorite Network, Hikang Robotics, and Hikvision have strengthened their positions and are developing well, forming an intelligent IoT ecosystem with the company's main business.

Investment advice: As a leading company in the field of intelligent IoT in China, it has a stable position in the industry. With the rapid growth of innovative businesses, it is expected to achieve long-term steady development. We expect the company to achieve operating income of 99.199/111.391/125.912 billion yuan and net profit to mother of 15.355/16.877/19.031 billion yuan in 2024-2026. The corresponding PE was 16.56/15.07/13.36 times, respectively, maintaining the “gain” rating.

Risk warning: risk of the geopolitical environment, risk of global economic downturn, risk of exchange rate fluctuations, risk of domestic demand falling short of expectations, etc.