23H1 Gimu's net profit fell 48.90% year on year, and was downgraded to the “increase in holdings” rating. The company released its 2023 semi-annual report. The reporting period achieved revenue of 1,578 billion yuan, a year-on-year decrease of 19.51%; it achieved net profit of 244 million yuan, a year-on-year decrease of 48.90%. Among them, 23Q2 achieved net profit of 127 million yuan, a year-on-year decline of 57.91%. Due to adjustments in procurement plans for downstream customers in the company's inspection and testing business, demand for the company's products has been slow to recover. We expect the company's net profit to be 634/793/967 million yuan in 23-25, corresponding to 24/19/16 times the corresponding PE, respectively. According to Wind's unanimous expectations, the comparable company's average PE in 23 years was 17X. Considering that the company's new materials business has a large market space and the penetration rate continues to increase, the second growth curve is clear, so the company was given PE25X in '23. The corresponding target price was 34.50 yuan, and the rating was lowered to the “increase in holdings” rating.

Downstream demand for components and trading business was insufficient, and the new materials business achieved rapid growth. In the first half of the year, the company's components sector was affected by procurement rhythm adjustments. Demand was insufficient. The company's product sales volume and gross margin level both declined compared to the same period last year. In the first half of the year, it achieved operating income of 656 million yuan, a year-on-year decline of 22.81%. Affected by supply and demand and the economic situation, consumer clients still mainly digested inventory, and shipments decreased compared to the same period last year. In the first half of the year, the new materials sector achieved revenue of 840 million yuan, a year-on-year decline of 20.90%; the new materials sector completed the liquid PCS production line Construction, and solid carbon silane products have cultivated a stable source of orders. In the first half of the year, revenue was 77 million yuan, an increase of 107.51% over the previous year. The company's overall gross margin level in the first half of the year was 39.38%, a decrease of 3.91 pct from the same period last year. The main reason was that the company adjusted the prices of some products, and at the same time, there were certain changes in the revenue structure.

The cost rate for the period increased significantly. Net operating cash flow increased year-on-year. The company's overall period expenses rate for the first half of the year was 16.58%, an increase of 5.55 pct over the same period last year. Among them, sales expenses were 74 million yuan, up 32.40% year on year, accounting for 4.67% of revenue, an increase of 1.83 pct; management expenses of 116 million yuan, up 19.74% year on year, accounting for 7.35% of revenue, an increase of 2.41 pct; and R&D expenses of 58 million yuan, up 24.64% year on year, accounting for 3.66% of revenue, an increase of 1.30 pct.

The company's net operating cash flow for the first half of the year was 570 million yuan, an increase of 10.03% over the previous year.

Deploy active power devices and expand overseas markets smoothly

In the first half of the year, the company used 174 million yuan of its own capital to obtain 51% of the shares of the Xiamen Core Generation through share acquisitions and capital increases. Its main business is R&D, design and sales of semiconductor chips such as MOSFETs, IGBTs, analog ICs, and third-generation power devices. Downstream applications cover consumer electronics, industry, and new energy vehicles markets, which is conducive to the horizontal expansion of the component sector and enhances the company's overall competitiveness. Since 2022, the company's trade business has vigorously deployed the Southeast Asian market. In the first half of the year, it achieved overseas revenue of 137 million yuan, an increase of 133.68% over the previous year. The results have been remarkable, effectively expanding the company's market space.

Risk warning: Self-produced business orders fall short of expectations, and there is a risk that product gross margin will fluctuate.