Introduction to this report:

The company's revenue has achieved rapid growth. It has integrated software and hardware two-wheel drive, and cost control has been strengthened, but net profit due to mother is still under phased pressure. The company is expected to continue to benefit from the wave of AI localization and achieve development beyond expectations.

Key points of investment:

Maintaining the “Overweight” rating, the target price was lowered to 16.94 yuan. According to the latest financial data, we have lowered and added profit forecasts. We expect the company's EPS for 2024-2026 to be 0.07 (-0.17), 0.12 (-0.26), and 0.19 yuan respectively. Based on the latest profit forecast, the target price will be lowered to 16.94 yuan by 5 times the PS in 2024 to maintain the “gain” rating.

The company's revenue achieved rapid growth, and net profit attributable to mother was under phased pressure. In the first half of 2024, the company achieved revenue of 1.728 billion yuan, a year-on-year increase of 61.07%, and achieved net profit to mother of 0.003 billion yuan, a year-on-year decrease of 94.23%. The company achieved rapid growth in revenue, and net profit to mother was under phased pressure.

Software and hardware integrated two-wheel drive, and cost control has been strengthened. In the first half of 2024, the company's intelligent computing hardware products achieved revenue of 0.874 billion yuan, an increase of 88.84% over the previous year. Since the company officially entered the intelligent computing hardware business in 2021, the business's revenue has maintained rapid growth for a long time and has become the core driving force for the company's revenue growth; the company's software and service business achieved revenue of 0.761 billion yuan, an increase of 43.85% year on year. Between 2020 and 2023, the annual revenue volume of the business remained stable at 1.2 billion yuan About a billion yuan. Gradually completed in 2024 with the adjustment of business focus, the business resumed growth trend and pushed the company into a new stage of two-wheel drive integrating software and hardware. The company continues to strengthen cost control. In the first half of 2024, the company's sales, management, and R&D expenses decreased by 0.58, 3.33, and 3.24 percentage points year-on-year, respectively, which is expected to help the company get through the strategic transformation period smoothly.

Software and hardware products continue to benefit from the wave of AI localization and are expected to exceed expectations in the future.

The company has become a comprehensive strategic partner enterprise of Huawei in the field of “Cloud+Kunpeng/Shengteng AI+ Industry Big Model+Open Source Hongmeng”. In the software business, the company implemented AI model industry solutions in various fields of smart transportation, intelligent manufacturing, smart office, smart education, smart testing, and smart cities based on the Shengteng computing power platform. In the hardware business, the company continues to win bids for local government and operator intelligent computing center benchmark projects based on “Kunpeng + Shengteng”. The company also forwardly lays out inference computing power, launched complete inference side and end side computing power products, and achieved large-scale sales in security, manufacturing, transportation and other industries. In the future, the company is expected to continue to benefit from the wave of AI localization and achieve growth beyond expectations.

Risk warning: Risk of tight supply of core components and increased market competition.