Event: The company released its 2023 semi-annual report, the company achieved operating income of 0.667 billion billion yuan in the first half of 2023, up 8.66 percent year-on-year, and the profit side achieved a net profit of 0.065 billion billion yuan, up 2.05 percent year-on-year. In the second quarter alone, the company achieved operating income of 0.349 billion yuan, up 9.67 percent from the previous quarter, and net profit of 0.033 billion yuan, up 7.71 percent from the previous quarter.

the new flagship continues to release volume and the product cycle logic is strengthened: the ESP32-S and C series products officially launched by the company last year have become the new generation of flagship products after ESP8266 and ESP32, making significant contributions to the company's performance growth. The ESP32-S3 can realize high-performance image recognition, voice wake-up and recognition functions in AI applications, marking the acceleration of the company's penetration into the middle and high-end fields. The ESP32-C series focuses on the iterative upgrade of interconnection technology, in which the new WiFi6 product will support a wider range of wireless connection applications. The company's ESP32-H2 supporting the Thread/Zigbee protocol have entered mass production and are expected to contribute incrementally in Q3.

gross margin steady improvement, hardware and software ecology reflects the core barriers: the company's gross margin overall maintained a high level, has achieved four consecutive quarters of solid improvement. Lexin continues to build competitive barriers in the AIoT long tail market with its sound hardware and software platform ecology. On the software side, the company has an industry-leading operating system and AIoT development platform tool chain, plus a highly active developer community that contributes to customer stickiness. In terms of hardware, the company's expanding product matrix will continue to open up new areas and new customers, while Lexin promotes the development of RISC-V self-research kernel ecology, the scale effect for the cost side Cost down will become more and more significant.

look ahead: at the industry level, we see the first batch of end products that meet the Matter standard are expected to be available in Q3, while the demand for connected chips for terminal intelligence is increasing. Company level in the second half of the new products continue to volume, the next generation of WiFi6E connection chip research and development smoothly, AI functions will also be further strengthened. Lexin Technology as a WiFi MCU segment leader will fully enjoy the AI-catalyzed smart home penetration and intelligent acceleration in the industrial sector.

investment advice: the company is expected to achieve operating income of 16.4/20.9/2.56 billion yuan and net profit of 1.5/2.3/0.32 billion yuan from 2023 to 2025. The corresponding PE is 66.2/44.1/31.3 times, maintaining an "overweight" rating.

risk tips: technology iteration risk, downstream demand risk, market competition risk, cost rise risk.