1Q24's revenue achieved a year-on-month increase, with a significant increase in gross margin leading to a significant narrowing of losses in a single quarter. 1Q24 achieved revenue of 151 million yuan (yoy: +145.42%, qoq: +1.51%), and net profit to mother of -35 million yuan (yoy: +27.63%, qoq: +35.99%), in line with our previous expectations of 150-0.38 million yuan. The main reasons for the year-on-month increase in revenue are: 1) consumer electronics demand is recovering, traditional MCU and health measurement AIOT-related products are steadily picking up; 2) there is a marked rise in new BMS and PC products. Affected by the reduction in wafer costs and the increase in the share of high-margin laptop products, the company's 1Q24 gross margin increased 6.58pct month-on-month to 34.18%, and was basically restored to the level of the second half of '22 (3Q22:36.46%, 4Q22:31.92%). Significant increases in revenue and gross margin led to a significant narrowing of losses in the single quarter. We are optimistic about the restoration of demand for the company's traditional products and the release of new products. The advantages of digital and analog mixing will be fully demonstrated. The 24/25/26 revenue will be maintained at 7.08/9.19/1,169 billion yuan, and 10 times 24PS (comparable to the company Wind's consistent expectation of 7x 24PS), corresponding to the target price of 49.7 yuan, a “buy” rating.

1Q24 review: BMS was shipped in large quantities, and the growth rate of PCs and peripheral chips was clearly recovering in 1Q24. Demand from the mobile phone, PC and other consumer markets began to be shipped in large quantities. New 2-5 BMS products were mass-produced, and the revenue of EC and PD series chips used in computers and peripherals increased by about 170% year on year. Furthermore, as industry inventory elimination nears its end, shipments of traditional MCU products, health measurement products, and AIOT-related products have steadily rebounded. In terms of expenses, the company has successively increased R&D investment in industry, computers, automotive electronics, etc., while equity payment costs for the quarter were 18 million yuan, leading to a year-on-year increase of 21.56% in 1Q24 R&D expenses to 61.87 million yuan, and the number of R&D personnel is expected to remain stable. As of 1Q24, the company's inventory was 234 million yuan, up 44 million yuan from the end of 23 to cope with the increase in downstream pickups.

2024 outlook: customer introduction and steady promotion of new products. The downstream multi-point flower company is steadily promoting the introduction of new customers and new products around the three major business lines of “simulation+MCU+health measurement AIOT”. The high level of R&D accumulation in the early stages will be expected to achieve continuous revenue over 24 years: 1) PC: EC products complete the comprehensive layout of the consumer market (E20 series) and commercial market (E21 series), and successfully equipped with Honor's first AIPC released in March, second-generation EC has been introduced to leading customers for verification. Customer development continues to be released quantity. 2) BMS: 2-5-section BMS continues to be shipped in the fields of laptops, power tools, drones, etc., and 12-18 section BMS AFE chips that meet ASIL-D functional safety levels are progressing normally. In addition, 1Q24 sensor conditioning chips have been shipped in batches, various vehicle MCUs have passed AECQ100 certification, and the company's product matrix continues to be enriched.

Investment advice: Target price is 49.7 yuan. Maintaining the “buy” rating, we are optimistic that the company will build a core product matrix around the “analog signal chain+MCU”. As industry sentiment recovers, the revenue for 24/25/26 is expected to be 708/9.19/1,169 million yuan, respectively. Considering the company's successive launches of new products in the PC and automotive fields, the advantages of digital-analog mixing will be fully demonstrated. 10 times 24PS (comparable to the company Wind's unanimous expectation of 7x 24PS), corresponding to the target price of 49.7 yuan, a “buy” rating.

Risk warning: The DDR5 penetration rate fell short of expectations, and prices continued to fall due to increased competition.