Event: On August 28, the company released its 2024 semi-annual report. In the first half of 2024, the company achieved operating income of 1.306 billion yuan, a year-on-year increase of 27.63%; realized net profit of 33.4823 million yuan, a year-on-year decrease of 31.18%; and realized net profit after deduction of 31.9293 million yuan, an increase of 31.98% year-on-year.

Adhere to modules as the foundation, continuously strengthen solution capabilities, and help the company develop in the long term. In the first half of 2024, the company continued to deepen its intelligent module and overall solution capabilities, and actively expand its global business and market layout. 24H1 achieved revenue of 1.306 billion yuan, a year-on-year increase of 27.63%, and half-year revenue reached a record high; net profit to mother of 33.4823 million yuan, a year-on-year decrease of 31.18%, mainly due to a sharp reduction in non-recurring profit and loss and an increase in financial expenses due to exchange losses. Among them, 2024Q2 achieved revenue of 0.731 billion yuan in a single quarter, up 26.08% year on year, up 27.27% month on month, and sales revenue in the single quarter reached a record high; net profit without return to mother was 26.8303 million yuan, up 139.31% year on year, and 426.19% month on month. From a gross margin perspective, some 24H1 products with low gross profit are shipped centrally, reducing the gross margin level in stages. The company's overall business gross margin for the first half of 2024 was 16.59%, a year-on-year decrease of 3.82 pcts. However, 24Q2's gross margin in a single quarter was 17.30%, up 1.61 pct from month to month, showing a quarter-on-quarter improvement trend. By region, the company's 24H1 overseas market revenue grew rapidly, achieving revenue of 0.44 billion yuan, a year-on-year increase of 38.58%, accounting for 33.73% of revenue; domestic market revenue was 0.866 billion yuan, maintaining a year-on-year growth trend. We believe that in the future, as the global market for products such as the company's intelligent modules and high computing power modules continues to expand, the company's performance may steadily improve.

Increase research on the application of generative AI technology and actively expand emerging fields such as advanced assisted driving, cloud computing, and robotics. The company is deeply involved in the direction of intelligent module technology, continues to maintain technological leadership in the field of smart modules/high computing power modules, and increases application research on generative AI technology. In terms of AI applications, for the first time, the company has run the Stable Diffusion large model on a high-computing power module, and has successively supported a series of other language models, laying a solid technical foundation for large-scale application of generative AI on the module side. At the same time, the company maintained stable R&D investment and supply chain delivery guarantee capabilities. 5G smart cockpit modules and vehicle-grade digital transmission modules to core automotive customers continued to be shipped in large quantities during the reporting period, driving revenue in the intelligent connected vehicle sector to maintain a rapid growth trend, and the share of revenue from the intelligent connected vehicle business continued to increase. The IoT industry has strong demand for customized and intelligent products from overseas markets, while domestic customer demand has returned to a growth trajectory, and the IoT industry has maintained a high growth rate. In the FWA field, the company continues to establish a complete 4G/5GFWA product line; using next-generation 5G baseband chips and radio frequency systems, it supports WiFi7 solutions and 10Gb Ethernet capabilities, bringing a high-speed, low-latency, high-stability and high-security connection experience, and supports optional millimeter wave bands, which is conducive to developing overseas markets such as North America, Europe, Japan, etc., and continues to launch key 5G projects in North America, Europe, Japan and other regions. Client, the company is increasing its focus on developing terminal vehicle manufacturers, leading Tier 1, drones, servers, consumer IoT, and overseas customers. We believe that in the future, with the continuous development and implementation of generative AI and end-side applications, the company's business development may continue to improve as fields such as cloud computing and robotics develop rapidly.

Profit forecast and investment rating: We expect the company's 2024-2026 net profit to be 0.093/0.111/0.135 billion yuan, the 2024-2026 EPS will be 0.36/0.42/0.52 yuan, respectively, and the PE corresponding to the current stock price will be 56/47/39 times, respectively. As the company's computing power module technology continues to be upgraded and iterated, we are optimistic about the company's future performance development and maintain a “buy” rating.

Risk warning: industry competition increases risk; risk of macroeconomic fluctuations; risk of product quality control; risk of exchange rate.