matters:

on August 28, 2023, the company released its semi-annual report for 2023:

1)2023H1: the company realized operating income of 25.029 billion yuan, +8.31% year on year; Gross profit was 24.54, +2.36pct year on year. Net profit attributable to parent/deduction not attributable to parent 21.02/1.774 billion yuan, year-on-year +27.10%/23.53%;

2)2023Q2: the company realized operating income of 15.756 billion yuan, year-on-year/month-on-month +30.72%/+69.90%; Gross profit margin was 25.23, year-on-year/month-on-month +2.36pct/+1.87pct; Net profit attributable to parent was 1.577 billion yuan, year-on-year/month +83.87%/+200.95, yoY/YoY +102.49%/+380.22%.

comments:

significant growth in sales revenue, rapid improvement in profitability. The company continued to explore emerging markets and actively promote model iteration, superimposed on the recovery of traditional market demand and emerging market development, overall shipments and sales revenue continued to grow, the company 2023Q2 achieved operating income of 15.756 billion yuan, year-on-year/month-on-month 30.72%/69.90%. In terms of profitability, the company achieved a gross profit margin of 25.23 in 2023Q2, year-on-year/month-on-month +2.36pct/+1.87pct, mainly due to product structure upgrading and cost optimization. 23Q2 Company realized net profit of 1.469 billion yuan after deducting non-returning parents, year-on-year/month-on-month +102.49%/+380.22%, net sales interest rate of 10.03, year-on-year/month 2.90pct/month pct/month +4.38pct, mainly due revenue growth, under the scale effect, the company's expense rate decreased significantly, profitability was maintained at a high level, the company's 23Q2 period expense rate of 12.25, year-on-year/month-on-month -1.25pct/-6.33pct. In the future, with the further recovery of downstream demand and the continued development in emerging markets, the company's performance is expected to maintain a high growth trend. By business, 23 Company H1 smartphones achieved 20.154 billion sales revenue, up from 8.86 percent YoY, and functional machines achieved 2.848 billion sales revenue, up from 3.90 percent YoY.

The global layout has shown its effectiveness, and the mobile phone market share has made steady progress. 2023H1 company's new market development strategy has achieved certain results, further consolidating the market position of the core key regions and countries, multi-brand collaborative new market development, taking into account the market share increase and healthy operation objectives. According to IDC data, 2023H1 has a 13.9 percent share of the global mobile phone market, ranking third among global mobile phone brand manufacturers, with smartphones accounting for 7.6 percent of the global smartphone market, ranking sixth. In the African market, the company's share of the African smartphone market exceeds 40%, ranking first. In the South Asian market, Pakistan and Bangladesh ranked first in smartphone market share; India's smartphone market share ranked sixth.

diversification strategy revealed, AI new format empowers future growth. The company is based on the mobile phone business, the development of mobile Internet, expansion of categories and other new business, while conforming to the trend of technological development, actively promote the AI-plus strategy, enabling the long-term growth of various product lines. 1) Mobile phone end: focus on key technical areas, further build deep user scenarios and technology leading research and development capabilities, optimize the high-end basic application experience, adhere to the user and technology dual drive, and continue to improve the competitiveness of high-end products. 2) Mobile Internet: Mobile Internet platform based on user traffic and data resources, the company and NetEase, Tencent and other leading domestic Internet companies, in music, integrated content distribution, news aggregation and other applications to carry out strategic cooperation, and actively develop and incubate mobile Internet products. The company will gradually build a good ecology of balanced and coordinated development of intelligent terminals and mobile Internet services, explore the path of multi-mode business growth, multi-dimensional, three-dimensional business, the use of AI scene recognition technology, equipment interconnection protocols, etc., to build OS smart experience. 3) Expansion category: based on mature stores and channel construction, the company's digital accessories, household appliances and other expansion category business firmly promote multi-brand development strategy, through the localization of intelligent hardware category ecological model exploration, actively implement diversified strategic layout, expand to meet the needs of consumers in emerging markets intelligent hardware new categories.

investment suggestion: the market recovery is superimposed on the rapid rebound of the company's business. we have raised our profit forecast. we expect the net profit attributable to the company from 2023 to 2025 to be 48.53/58.86/72.95 (the original value is 37.66/45.90/5.705 billion), and the corresponding EPS is 6.02/7.30/9.04 yuan (the original value is 4.68/5.71/7.10 yuan). We are optimistic about the company's emerging market development and business growth outside mobile phones, giving 28 times PE in 2023, corresponding to the target price of 168.6 yuan/share, maintaining a "strong push" rating.

Risk Warning: Downstream demand is less than expected, market development is less than expected, mobile Internet expansion is less than expected.