Key points of investment

Due to multiple factors such as streamlining and optimization of the business structure, revenue is temporarily under pressure on 24H1 revenue in the short term, business restructuring, and net profit to mother +24%. Revenue of 38.85 billion yuan (-17%, the following are all year-on-year ratios), net profit due to mother 0.4 billion yuan (+24%), after deducting non-return to mother 0.31 billion yuan (+3%). The company streamlined its business, carried out a number of special actions, dismantled, sorted out and optimized the entire operation process of each business in a targeted manner, and divested some of the “burdens”, businesses with no sustainable development model and no development value. 24H1 asset impairment losses decreased by 0.077 billion yuan over the same period last year, and operating profit increased by 30%.

24Q2 revenue pressure -20%, net profit to mother +58%. Revenue 17.2 billion yuan (-20%), net profit attributable to mother 0.23 billion yuan (+58%), after deducting non-return to mother 0.15 billion yuan (+17%).

24H1 gross profit margin and net margin continue to be optimized. Gross profit margin 3.8% (+1pct), net profit margin 1.1% (+0.3pct), sales expense ratio 1.8% (+0.6pct), management expense ratio 0.4% (+0.1pct).

Store expansion+new retail penetration, consumer electronics recovery is expected to drive the company's revenue growth channel network to improve and improve, and sales in all categories will drive revenue growth. The company is a national first-class dealer company for mobile phone brands such as Apple, Honor, Samsung, and Meizu. It has now built an efficient channel network covering more than 0.1 million domestic T1-T6 omni-channel stores. 24H1 has more than 3,100 authorized Apple stores and outlets, 186 self-operated APR stores; Honor Agent's digital range of products covered by the same number of customers increased by more than 11%; the number of Samsung retail stores managed by Samsung increased by 168, and the total number of service and management stores exceeded 4,380. Furthermore, the new Apple iPhone 16 series is expected to be released in September this year. As an Apple Tier 1 dealer, the company's performance is expected to improve due to new products.

The volume of new retail was increased, and an omnichannel sales system was established. The company relies on a mature offline channel construction, control and service system to continuously promote the upgrading of new retail strategies. 24H1 Apple's O2O sales continued to rise, and online sales at Coodoo stores also increased by 60%, and over 2,100 managed Samsung retail stores entered the JD.com and Meituan flash shopping platforms.

The global sales and service network is improved, and new private brands are expected to continue to contribute to the strengthening of incremental global layout capabilities. As an authorized service provider for Honor brands in Thailand and Vietnam, the company provides brands with full-link services such as marketing, sales, delivery, and after-sales services. 24H1 Honor has sold over 540 stores in Hong Kong, making it the third-largest mobile phone brand in Hong Kong after Samsung and Apple.

We have a wide range of private brands. 24H1's new-style tea brand “Cha Xiaokai” sold over 100 million, covering over 0.25 million sales outlets, and ranked 7th in the market share of the sugar-free ready-to-drink tea category in April-May 2024, which was released by “Win Now”.

Honor's IPO is progressing. As Honor's omnichannel service provider, it is also participating in Honor's shares. According to the “Science and Technology Innovation Board Daily” report, Honor plans to launch a shareholding system reform in 24Q4 and will advance the IPO process at the right time. The company is Honor's online and offline omni-channel retail service provider, and is also an authorized service provider for Honor brands in Hong Kong, Thailand, Vietnam and other countries and regions. Furthermore, in 2020, the company and team spent a total of 0.66 billion dollars to participate in the joint acquisition of Honor, which is expected to further enhance the company's brand value.

Profit forecasting and valuation

As a leading digital distribution and digital retail service provider in China, Ascend has significant competitive advantages in sales network layout, product operation development, organizational efficiency improvement, and digital renewal support. We expect the company's revenue for 24/25/26 to be 93.3/95.9/100.1 billion yuan, an increase of 1%/3%/4%, and net profit to mother of 0.711/0.776/0.861 billion yuan, an increase of 9%/9%/11%. The PE corresponding to the current market value is 17/15/14X, respectively, maintaining a “buy” rating.

Risk warning: New product sales and expansion fall short of expectations; mobile phone sales fall short of expectations; industry competition intensifies.