Key points of investment:

The company released its 2024 semi-annual report, and the results were in line with expectations. According to the company's announcement, 1) 24H1 achieved operating income of 38.847 billion yuan, -16.54%; net profit to mother of 0.395 billion yuan, +23.92% year-on-year; and deducted non-net profit of 0.306 billion yuan, or +3.30% year-on-year. 2) The company achieved operating income of 17.194 billion yuan in 24Q2, -20.20%; net profit to mother of 0.228 billion yuan, +57.55% year-on-year; deducted non-net profit of 0.152 billion yuan, or +17.31% year-on-year.

“Domestic+Overseas” promotes market development in both directions, and the scale of channel coverage continues to expand. According to the Chinese Academy of Information and Communications Technology, domestic mobile phone shipments from January to June 2024 reached 0.147 billion units, an increase of 13.2% over the previous year. According to the company's announcement, the company is deeply involved in the channel sinking market. The number of Apple authorized stores and outlets managed by 24H1 exceeds 3,100, and the number of self-operated APR stores has always maintained a leading position in the industry. The number of customers covered by the digital series products represented by Honor's business segment increased by more than 11% year on year, and overall sales achieved steady year-on-year growth in the first half of the year. The number of Samsung retail stores managed by the Samsung business segment increased by 168, and the total number of service and management stores exceeded 4,380. The 24H1 Honor brand became the third largest mobile phone brand in Hong Kong, China. Sales covered more than 540 stores, and brand awareness increased. The company simultaneously increased Honor's overseas business channel development efforts in Hong Kong, Thailand, Vietnam and other places. As smartphones equipped with artificial intelligence technology are launched one after another in the second half of 24, and the trade-in policy continues to increase, it is expected to spawn a new wave of switching. As a national first-class dealer for mobile phone brands such as Apple, Honor, and Samsung, the company is expected to fully benefit from growth.

Broaden the new retail sales and service network, and develop high-value-added space for private brands. The company accelerated the construction of an omni-channel integrated ecosystem with offline channels as the core, and enabled more stores to quickly enter major e-commerce and private platforms. According to the company announcement, 24H1's O2O sales in the Apple business segment continued to increase, the online sales volume of Coodoo stores increased 60% year-on-year, and more than 2,100 managed Samsung retail stores entered the JD.com and Meituan flash shopping platforms. While focusing on the main consumer electronics business, the company builds its own brand operation capabilities, enriches the brand matrix, expands the business scale, and obtains higher gross profit space. The sales scale of 24H1's new-style tea brand “Cha Xiaokai” quickly surpassed 100 million in the first half of the year, covering more than 0.25 million sales outlets.

Focusing on sustainable and high-quality business development, 24Q2 gross sales margin was +1.23pct year-on-year. According to the company's announcement, 24H1 actively withdrew from some “burdens”, no sustainable development model, and no development value. 24H1 asset impairment losses decreased by 76.8763 million yuan compared to the same period last year, -88.75%, and operating profit +29.83%. 24H1's gross margin reached 3.75%, +0.92pct compared to the previous year. Continued efforts to develop its own brands are expected to further open up room for gross profit optimization. The cost ratio for the 24H1 period was 2.39%, +0.66pct year on year. Among them, the sales/management/ R&D/finance expenses ratio was 1.84%/0.38%/0.04%/0.13%, respectively, with year-on-year changes of +0.56/+0.09/+0.00/+0.01pct, respectively. 24Q2's gross sales margin was 3.96%, +1.23pct year on year, with sales/management/ R&D/finance expense ratios of 2.33%/0.43%/0.05%/0.10%, respectively, with year-on-year changes of +0.87/+0.17/+0.00/+0.04pct, respectively.

Investment analysis opinion: The company is mainly engaged in distribution and retail of 3C digital, FMCG, communication and value-added services with mobile phones as the core. It has a high degree of digitalization and deep channel barriers, and continues to empower cooperative brands. The company broadens the new retail sales and service network on the basis of existing business, promotes its own brand strategy in various fields, and lays out new performance growth points. We maintain our profit forecast. The company's net profit for 24-26 is estimated to be 0.744/0.81/0.868 billion yuan respectively, corresponding to PE 16/15/14 times, maintaining a “buy” rating.

Risk warning: mobile phone sales fall short of expectations; new brand expansion falls short of expectations; industry competition intensifies.