Revenue in the second quarter increased by 12% from the previous quarter, and gross profit margin was under pressure. The company's 1H23 realized revenue of 1.342 billion yuan (YoY-14.22%), net profit of 174 million yuan (YoY- 65.49%), and non-return net profit of + 50 million yuan (YoY- 89.00%). Of this total, 2Q23's revenue is 710 million yuan (YoY-12.2% QoQ + 12.3%), the net profit returned to the mother is 139 million yuan (YoY-47.5% QoQ + 304%), and the non-return net profit is + 27 million yuan (YoY-88% QoQ + 13%). In terms of profitability, the gross profit margin in the first half of the year decreased by 20.3pct to 27.27% compared with the same period last year, and the net profit margin decreased by 22.8pct to 10.58% compared with the same period last year, of which the gross profit margin of 2Q23 was 25.13% (YoY-19.8pctmenQoQ-4.5pct).

The gross profit margin of semiconductor wafers fell 26pct in the first half of the year compared with the same period last year, and revenue increased by about 14% in the second quarter. In the first half of the year, the company's semiconductor wafer business achieved revenue of 755 million yuan (YoY-18.48%), accounting for 56%, with a gross profit margin of 16.74% (YoY-26pct), of which 2Q23 revenue increased by 13.97% month-on-month. The decline in gross profit margin is mainly due to 1) the decline in capacity utilization of silicon polishing wafers, and the prices of some silicon wafers have been reduced; 2) the 12-inch silicon wafers in Quzhou base are still in capacity climbing; 3) Jiaxing Jinruihong, which was acquired in March 2022, is in production capacity climbing. Compared with polished wafers, the company's epitaxial wafers benefit from stable demand for power semiconductors and adequate capacity utilization.

The revenue of semiconductor power devices increased by about 8% in the second quarter. In the first half of the year, thanks to the stable demand for clean energy and new energy vehicles, the company's semiconductor power device chip capacity utilization remained high, with sales only 3% lower than the same period last year, but the prices of some products were reduced, achieving an income of 538 million yuan (YoY-10.69%), accounting for 40%, with a gross profit margin of 44.34% (YoY-15pct), of which 2Q23 revenue increased by 8.37% month-on-month. In the first half of the year, centering on photovoltaic and vehicle regulations, the company gave priority to expanding the sales scale and proportion of groove products, steadily increasing the production and sales proportion of FRD products, speeding up the development of IGBT and other products, IGBT products successfully completed technical development, through the verification of some customers, began to enter the stage of small batch shipment.

In the first half of the year, RF chip revenue increased by 95% compared with the same period last year, and the loss narrowed. In the first half of the year, the company's compound semiconductor RF chip business realized income of 38.45 million yuan (YoY + 95.25%), accounting for 3%, with a gross profit margin of-10.21% (YoY + 67pct). Benefiting from product technology breakthroughs, the company's RF chip verification progress has basically covered domestic mainstream mobile phone chip design customers, with a substantial increase in in-hand orders compared with the same period last year, and a reduction in losses while revenue increased in the first half of the year.

Investment advice: the company's short-term profits are under pressure to maintain its "overweight" rating.

We estimate that the company's 2023-2025 net profit on homing will be RMB 408x619A million, a year-on-year growth rate of-40.7max 51.8pm 42.4% EPS of 0.60pm 0.91max 1.30 yuan, and the PE corresponding to the stock price on August 14, 2023 is 5738x26x. Short-term profits are under pressure, maintaining the "overweight" rating.

Risk hint: capacity release is not as expected; customer verification is not as expected; downstream demand is not as expected.