The company announced the 24Q1 quarterly report, with Q1 revenue of 885 million +19.12% month-on-month, -0.31% month-on-month, net profit of 0.26 million yuan after deducting non-return net profit, all of which turned a loss into profit year-on-month. The gross profit ratio was 18.88% yoy +0.62pcts month-on-month +8.81 pcts, and a net profit margin of 3.10% yoy +3.64pcts month-on-month. At the same time, the company announced a three-year equity incentive plan. Our review is as follows:

24Q1 successfully turned a loss into a profit, better than market expectations, and the inflection point in performance has arrived. The company's revenue achieved relatively rapid growth. Thanks to increased demand in the downstream automobile and server markets, the company actively expanded domestic and foreign customers in the server field, and production and sales increased. The profit side successfully turned losses into profits, and the gross margin improved year-on-month. On the one hand, thanks to a significant increase in the company's overall capacity utilization rate, on the other hand, the company's business structure continued to be optimized. Orders from core customers in the AI server field were gradually increased, and the customer matrix in the automotive electronics sector continued to be enriched. In 23, the share of orders for servers and automotive electronics products increased to 24%/17%, respectively. Q1 expects the share of related orders to further increase the company's profitability. In terms of cost rates, the cost rates for marketing management and research were 3.42%/4.32%/5.51%/0.45%, respectively, +0.51/-2.49/+0.21/-0.96pcts compared to the same period.

Three-year equity incentives, profit targets demonstrate the company's management's confidence in future operations. The company plans to grant no more than 41.591 million restricted shares, accounting for about 5.00% of the company's total share capital. Of these, about 37.68 million shares were granted for the first time, and about 3.91 million shares were reserved, and the grant price was 5.01 yuan/share. For the first time, the award was given to 521 middle and senior management and key core technical (business) personnel. According to estimates, the revenue for 2024-2026 corresponding to 100% grant conditions was 40.8/51.1/5.96 billion, respectively, with a growth rate of about 24.8%/25.0%/16.7%, and net profit to mother of not less than 1.5/30/450 million, respectively. It is estimated that the total cost to be amortized for the initial grant of equity incentives is $194 million, and the expenses for 24-27 are $0.51/0.84/0.46/0.13 billion, respectively. We believe that this incentive will fully mobilize the enthusiasm of the company's employees and effectively combine the interests of shareholders, the company and the core team. The profit target also shows that the company has emerged from past difficulties and entered a steady and high-quality growth path.

Looking ahead to 24 years, the company is expected to return to a rapid growth trajectory with strong development in communication networks, AI servers, and automotive electronics. In the field of high-end communication network equipment, the company continues to actively cooperate with leading customers to develop PCB products in application fields such as 5.5G/6G, satellite communication, 800G switches, optical modules, etc., and is expected to achieve mass production in 24 years, which is expected to increase the unit price of the product. In the server field, the company continues to optimize the server product structure and focus on AI server product development. Currently, it has developed many server customers including Amazon. AI supporting motherboards and accelerator card products have entered mass production. With the release of production capacity in Dongcheng Phase IV, AI product revenue is expected to increase Further expansion. In the field of automotive electronics, the company continues to increase investment in dedicated automobile lines, and continues to develop more new technologies in segments such as intelligent driving, power energy, and smart cockpits. With the increase in production capacity in Ji'an and Dongcheng and the introduction of batch orders from more new customers, the scale continues to grow rapidly. Along with the continuous increase in global computing power demand, domestic data center expansion, demand for high-computing power servers, and new platform upgrades, etc., the three-phase automotive trend is evolving at an accelerated pace. The company is expected to benefit from the rapid development of industry segments and the dividends of new production capacity over 24 years.

Maintain an “overweight” investment rating. The company has been deeply involved in communication networks, HPC, and automotive electronics circuits for many years. It has mastered mainstream customer resources and core technology, and has strong core competitiveness. Along with the continuous release of new production capacity, the company will continue to benefit from the three main business lines in the long term and return to a rapid growth path. Taking into account the company's successful transformation of losses into profit in Q1 and the company's three-year equity incentive targets and expenses to be amortized, we recently forecast the company's total revenue for 24-26 of 40.9/51.1/6.14 billion, net profit to mother of 1.7/3.6/570 million, corresponding EPS of 0.20/0.44/0.69 yuan, respectively. Corresponding to the current stock price PE is 48.9/22.7/14.3 times, respectively, to maintain an “increase in holdings” investment rating.

Risk warning: Prices of upstream raw materials fluctuate; customer development falls short of expectations; downstream demand falls short of expectations; new production capacity falls short of expectations; industry competition intensifies.