3Q23 revenue was in line with expectations. Focus on the pace of new product releases such as L-pamid. 3Q23 achieved revenue of 150 million yuan (yoy: +187.86%, qoq: +17.50%), in line with our previous expectations of 155 million yuan, net loss of 134 million yuan (yoy: -34.88%, qoq: -22.64%). In 3Q23, the company's revenue improved markedly month-on-month, mainly because the third quarter was the traditional peak season for consumer electronics, domestic Android brand mobile phone sales resumed growth, and the company's early import projects began to expand. In 3Q23, gross margin declined slightly month-on-month due to an increase in the revenue share of fiercely competitive 4G products; due to prudential principles, the company made more asset impairment preparations (37.47 million yuan), and net loss exposure increased month-on-month. Demand in the domestic Android phone market is picking up. We expect the company's revenue for 23/24/25 to be 603/11.11/1,519 billion yuan, respectively. Considering the rapid increase in company share, new products such as LPamid will soon be released, and 10x 24PS (industry average value 9.8x 24PE), with a target price of 24.5 yuan, “buy”.

3Q23 review: Revenue increased significantly month-on-month. Due to the increase in 4G product volume, gross margin was under pressure. The third quarter was the peak season for traditional consumer electronics. Demand from mobile phone brand customers and ODM manufacturers increased markedly. Combined with the steady progress of 4G projects from IoT customers, the company's 3Q23 revenue improved markedly month-on-month. However, due to the increase in sales share of 4G products and price competition for some products, the company's 3Q23 gross margin was only 9.69% (yoy: -7.23pct, q:-1.00pct), and gross margin is expected to stabilize in the fourth quarter. Due to the continued decline in the price of 4G products, due to the principle of prudence, the company's 3Q23 calculated asset impairment provision of 37.47 million yuan, an increase of 20.09 million yuan over the second quarter, causing the net loss exposure of the parent company to expand to -134 million yuan (loss increased by 225 million yuan over the previous quarter). In terms of inventory, as of the end of the third quarter, the company had an inventory of 500 million yuan. The inventory level has continued to decline since 1Q23. The number of inventory turnover days was 391 days, a decrease of 46 days from the end of the second quarter. We expect the 4Q23 asset impairment calculation to drop significantly.

4Q23/24 outlook: Increase brand customer penetration and promote large-scale mass production of L-pamid MediaTek expects global smartphone shipments to achieve low single-digit growth in 2024. Among them, 5G phone shipments are expected to achieve double-digit growth. We believe that the recovery in demand in the mobile phone market is expected to drive the company to achieve a high increase in revenue in 24 years. In addition to industry factors, our revenue forecast for next year of 1,111 billion yuan is mainly based on the following reasons: 1) The low frequency and medium and high frequency L-pamid modules have all achieved small-scale mass production and shipment in '23. The company is actively cooperating with brand manufacturers to verify and continue marketing, and is expected to launch on a large scale next year; 2) competitive new products such as low-voltage 5G L-PamIF and MMMB PA modules have all entered the pre-mass production stage. The company will strengthen the project development of existing customers and further introduce new Android brand customers to accelerate market share growth.

Investment suggestion: The target price is 24.5 yuan, with a “buy” rating. The company's revenue is estimated at 603/11.11/1,519 billion yuan in 23/24/25. Considering that the introduction of the company's brand customers continues to accelerate, and that new products such as L-pamid and the low-voltage version 5G L-Pamif are about to launch, give 10x24ps (industry average value 9.8x 24PE), with a target price of 24.5 yuan, maintaining the “buy” rating.

Risk warning: Downstream demand is recovering slowly, market competition is intensifying, and iterative technological upgrades fall short of expectations.