Incident: The company released its results report for the third quarter of 2023. In the first three quarters, the company achieved revenue of 3.832 billion yuan, +21.26% year over year; realized net profit to mother - 1,361 billion yuan, -56.48% year over year; realized deduction of non-net profit - 1,759 billion yuan, -74.65% year over year. On a quarterly basis, in Q3 2023, the company achieved revenue of 1,312 million yuan, +16.15%, and -3.93% month-on-month; realized net profit to mother of 252 million yuan, +15.00% year-on-year, +58.55% month-on-month; and realized deducted non-net profit of 511 million yuan, +28.54% month-on-month.

MEMS & automotive SiC emissions contributed to revenue growth. EBITDA grew rapidly year over year: revenue side: revenue grew steadily year on year in the first three quarters, mainly due to: 1) demand for mobile phones and the Internet of Things regained an upward trend, driving the growth of the company's consumer business; 2) the company's automotive SiC business developed rapidly. Profit side: The company's gross margin for the first three quarters was -3.56%, +0.17pct year on year; net margin was -51.51%, -5.24pcts year on year, mainly due to a sharp increase in asset impairment losses. Expense side: The company's sales/management/R&D/finance expense ratios for the first three quarters of 2023 were 0.54%/2.24%/27.19%/6.59%, respectively, with a year-on-year change of +0.07/-0.23/+7.99/ -0.83pct. The company's R&D expenses increased year-on-year in the first three quarters, mainly due to increased R&D investment by subsidiaries.

The MEMS business continues to improve, and the IGBT business is expected to return to a rapid development trajectory: According to Mordorintelligence forecasts, the MEMS sensor market is expected to grow from US$15.74 billion in 2023 to US$24.41 billion in 2028, with a compound annual growth rate of 9.17%.

Since the third quarter, benefiting from the renewed rise in demand for mobile phones and the Internet of Things, the company's MEMS product production line has had a high operating rate. The company's high-performance MEMS microphone products have been certified by leading international terminal customers and have achieved large-scale mass production, and are widely used in mainstream mobile phone brands in the current market. MEMS in-vehicle inertial navigation and lidar have also made major breakthroughs and are beginning to increase steadily. In the field of power semiconductors, with the further deepening of the new energy industry, the global power semiconductor market is still expanding. The company has become the largest domestic OEM with automotive-grade IGBT chip and module production capacity, and has IGBT chip technology comparable to the international advanced level. Currently, the company's 8-inch IGBT production capacity has reached 80,000 pieces/month, and its products are used in many mainstream domestic NEV manufacturers. At the same time, the company's Phase I and Phase II production plants are all under construction in accordance with vehicle regulations. According to the company's interim report, according to Yole data, the global power semiconductor discrete device and module market size will reach 7.6 billion US dollars and 113 billion US dollars, respectively, by 2025. The company is currently planning to replace IGBT products. With the completion of the H1 automotive and new energy series product iterations next year, the company's IGBT business is expected to return to a path of rapid development.

The automotive business landscape continues to deepen, and the SiC device market is promising: in the SiC field, the company mainly focuses on automotive-grade SiC products. As of September 2023, the company's SiCMOS monthly shipments reached 4,000 6-inch wafers, 90% of which are used in automotive main drive inverters. The company's latest generation of high-performance SiCMOS has been released and samples have been sent, and the performance has reached the world's advanced level. The company established a joint venture, Xinlian Power, on October 24, 2023 to meet the company's development strategy and business needs, promote vertical integration of the company's industry, and achieve the company's entire industrial chain layout, thereby helping the company develop rapidly in its silicon carbide (SiC) business and gain a leading edge. According to Yole data forecasts, the third-generation semiconductor market, mainly represented by silicon carbide (SiC), is expected to reach US$6.297 billion by 2027, of which the NEV sector will reach US$4.986 billion. According to statistical analysis by the China Association of Automobile Manufacturers, in September 2023, production and sales of new energy vehicles completed 879,000 units and 904,000 units respectively, up 4.3% and 6.8% from the previous month, and 16.1% and 27.7%, respectively. In the future, with the further development of the new energy industry and the rapid growth of the global SiC device market, the company is expected to benefit from rapid iteration of technology and expansion of production capacity, and seize the growth opportunities brought by the development of the new energy market.

Lowering profit forecasts and maintaining the “gain” rating: The company has become the largest domestic OEM with production capacity for automotive-grade IGBT chips and modules. It has a complete and technologically advanced automotive-grade high-quality power device R&D and mass production platform, and is an important domestic automotive-grade IGBT chip and module manufacturing base. In the future, as demand for consumer electronics recovers and the semiconductor industry enters an upward cycle, the company is expected to gradually increase its profitability; at the same time, as market segments such as new energy power generation and new energy vehicles continue to grow, and the company continues to make breakthroughs in technology research and development and business development in the fields of automotive and industrial control, the company is expected to further increase its profit level. Considering that the company is currently in a period of rapid development, production capacity investment continues to increase, and depreciation amounts are increasing accordingly, putting a lot of pressure on the profit side, the profit forecast was lowered. It is estimated that the company's net profit to mother for 2023-2025 will be -1.25 billion yuan, -834 million yuan, and -593 million yuan, respectively, and EPS will be -0.17 yuan, -0.12 yuan, and -0.08 yuan respectively.

Risk warning: Market competition increases risk, downstream demand falls short of expectations, customer concentration risk, and exchange rate fluctuations affect it.