1Q24 revenue increased year-on-year, and profitability improved significantly

The company achieved revenue of 543 million yuan in 1Q24 (yoy: +64.89%, qoq: -20.13%) and net profit to mother of 68 million yuan (year-on-year loss turned profit, qoq: +17.51%), in line with previous forecasts. Demand in the downstream market has recovered. 1Q24 has achieved a significant year-on-year increase in automotive electronics, industrial applications, machine vision, etc. RK3588 has entered a period of rapid growth, and sub-new products represented by RK356X and RV1106/1103 have accelerated, driving a significant year-on-year increase in revenue. 1Q24 was able to achieve a month-on-month increase in profit even when revenue declined month-on-month, mainly due to: 1) changes in product structure led to a 1.64pct month-on-month increase in gross margin; 2) good cost control and reduced asset impairment losses.

We expect net profit of 333/6.04/916 million yuan in 24-26. Considering the gradual implementation of end-side AI and the company's flagship chip entering a period of rapid growth, we will give 50x 25PE (comparable to the company Wind's consensus estimate of 43x 25PE), with a target price of 72.5 yuan, maintaining a “buy” rating.

1Q24 review: Market demand has recovered, terminal inventory has returned to normal since 24 years of accelerated release of flagship chips+sub-new products, and market sentiment has picked up. The trend of localization and miniaturization of AI models at the edge and terminals has become more clear, driving the AIoT industries that the company has been deeply involved in for a long time to accelerate development. The number of mass production customers and projects for the flagship chip RK3588 continues to increase and enter a period of rapid growth. In addition, new products such as the mid-to-high-end AIoT processor RK3576 and the AI audio processor RK2118 were released one after another in 1Q24. Affected by factors such as product structure, customer structure and exchange rate, the company's 1Q24 gross profit margin was 34.68% (yoy: +1.24pct, qoq: +1.65pct). In terms of inventory, as of 1Q24, the company's inventory was 1,155 billion yuan, down 96 million yuan from the end of 23. Asset impairment losses fell sharply month-on-month (4Q23:0.21 million yuan), and the cost side is expected to improve one after another in '24.

2024 full-year outlook: The AIoT chip matrix has been further improved, and the automotive electronics business has entered a harvest period of 24 years. The company will continue to continue to develop the AIoT market in various fields and expand its market share: 1) Automotive electronics:

Continuing to increase the number of customers and project reserves, the RK3588 is expected to enter the expansion period. The RK3576 will actively promote vehicle regulation testing and vehicle audio, and will later enter product lines such as instrument panels and vehicle audio; 2) Industrial control: the company relies on high-performance, high-integration, high-quality products to steadily increase its market share in the fields of HMI, PLC control, industrial vision processing, industrial robots, edge computing, etc.; 3) AI tablets: The company is based on the RK3588, RK3576, RK3562, and RK3326 product matrices for customers We provide 0.5 to 6 TOPs of different computing power chips, cooperate with leading customers in various fields, and actively explore the AI education tablet and consumer tablet markets.

Investment suggestion: The target price is 72.5 yuan, maintaining the “buy” rating. We are optimistic that the sales volume of automotive electronics and AIoT products in 24 will drive the company's revenue growth. The net profit for 24/25/26 is expected to be 3.33/6.04/916 million yuan respectively. Considering the accelerated implementation of AI on the side, the company gradually improved the product matrix and gave it 50x 25PE (comparable company Wind agreed to 43x25PE). The target price was 72.5 yuan, a “buy” rating.

Risk warning: downstream demand is weakening, new product promotion falls short of expectations, and market competition is intensifying.