Key points of investment:

Event: At the 2024 DingTalk Ecological Conference held recently, Yilian Network and DingTalk released AI conference hardware to showcase Yilian Network and DingTalk Rooms' “Cloud+End+AI” full-scene conference room solutions.

Focus on ecological cooperation and deep compatibility. Terminal products such as Yilian MeetingBoard, MeetingEye 500 series, and MeetingBara10/20/30 are fully compatible with DingTalk Conference Rooms and have strong capabilities such as audio and video AI collaboration.

The performance forecast exceeded expectations, with a double increase in Q2 compared to the same period last year. Earlier, the announcement of the 24th interim report was announced. 24H1 is expected to achieve revenue of 26.2 to 2.72 billion yuan, a year-on-year increase of 28-33%; net profit to mother of 13.4-1.39 billion yuan, an increase of 30-35%; after deducting non-net profit of 12.3-1.28 billion yuan, an increase of 36-42% year-on-year. Looking at Q2 alone, we took median revenue of 1.5 billion yuan (YoY +30%) and net profit of 0.795 billion yuan (YoY +31%, QoQ +40%; previously we anticipated 0.7 billion yuan).

The high increase is mainly due to improvements in downstream demand compounded by a continuous increase in net interest rates. The popularity of the hybrid office model has driven changes such as the digital intelligence of enterprises. Previously, dealer inventory had returned to a healthy and reasonable level, downstream demand continued to improve marginally, all product lines were progressing steadily, and business continuity was improving. At the same time, the company continues to improve enterprise communication solutions and expand sales channels. Under long-term competitive advantage, the net interest rate can also be seen to increase significantly. The net interest rate for 24Q2 is expected to be 53%. Previously, the net interest rate for Q1 was 49%, and the net interest rate for '23 was 46%.

As a traditional business, desktop communication terminals have improved marginally. Previously, demand in some industries declined due to the combination of inventory removal cycles and the trend of hybrid office, but in Q1 this year, we can already see marginal improvements and relatively healthy growth in the phone business. Since 2017, the company's SIP phones have maintained the largest market share in the global market. According to Frost & Sullivan (Frost & Sullivan) consulting agency data, the market share in 2021 was 38.2%, and the share is expected to increase further.

The new business of conference products+cloud office terminals contributed significantly, and the launch of new products boosted continued revenue growth. In terms of conference products, all-in-one terminals such as the 23-year smart Android video integrated machine MeetingBar A10 are already on the market; the AI video conferencing equipment SmartVision 60 and MVC 3rd generation joined forces with Microsoft and received enthusiastic feedback from the market. In terms of cloud office terminals, the new product is centered around the BH series Bluetooth headset. It has been iteratively updated and launched on the market in 23 years to enable product innovation. It will follow the idea of high-quality audio performance, continue to improve the product matrix, and focus on the subsequent contribution of the new product to revenue.

Maintain an “Overweight” rating. We believe that as a core telecommunications company, the company has strong profitability, and its performance is expected to continue to increase as demand continues to improve marginally. Considering the lower performance base due to the transfer of demand in some industries due to the transfer of demand from mixed offices during the previous inventory removal cycle, etc., the company's 2024 profit forecast was adjusted, and the 25-26 profit forecast was added. The estimated net profit to mother for 24-26 was 2.431/2.943/3.549 billion yuan (the original forecast net profit for 24 years was 3.909 billion yuan), and the corresponding PE was 17/14/12 times (comparable to the company's PE 26/20/16 times), maintaining the “gain” rating.

Risk warning: VCS/business headset business development falls short of expectations, new product sales fall short of expectations, impact of external emergencies, etc.