Matters:

On April 29, 2024, the company released its report for the first quarter of 2024:

The company achieved operating income of 372 million yuan in 2024Q1, -0.53%/-0.17%; gross profit margin of 34.76%, +3.34pct/month-on-month; net profit to mother of 100 million yuan, +54.06%/-7.54% yoy; net profit after deduction of 84 million yuan, +31.05%/-18.29% yoy.

Commentary:

Downstream demand is gradually picking up, compounded by the gradual expansion of new products and fields, and the company is expected to return to its growth trajectory. The company uses technology and product advantages to actively adjust product structure, market structure and customer structure, and continuously optimize costs to promote a continuous increase in overall profit levels. The company's 2024Q1 revenue was -0.17% to 372 million yuan, and gross margin was +2.98pct to 34.76% month-on-month; in addition, the company's share payment expenses due to equity incentives in the previous year also had a certain impact on the margin of change in current profit. With the recovery of downstream demand and the expansion of new products in new fields, the company's performance is expected to return to a growth trajectory in the future.

The company's products continue to be introduced into the field of new energy, and actively explores the AI server market to help long-term development. The company has now launched 200 automotive-grade MOSFET products, and the cooperation with BYD has switched to direct supply, and applied to BYD's full range of models. At the same time, it continues to ship on a large scale to leading domestic Tier 1 companies such as United Electronics and Bethel. Currently, the company has obtained fixed notices for more than 20 automotive electronics projects from United Electronics.

In the field of AI servers, the company develops products around the needs of AI computing power servers. Currently, related products have been sold in batches to leading customers in the AI computing power field, and will grow even more rapidly. The company expects demand for photovoltaic energy storage to pick up in 2024, while sales in new fields are expected to grow at a high rate.

Relying on R&D advantages, the company continuously optimizes its product structure, and the launch of new products is expected to open up a second growth curve. In terms of automotive electronics, the company's four major product platforms, SGT MOS, Trench MOS, SJ MOS, and IGBT, more than 140 typical products have completed product development based on APQP, passed the AEC-Q101 vehicle reliability assessment, and more than 70 products are being certified. In terms of photovoltaic energy storage, the company has developed or is developing many IGBT module products used in the field of photovoltaic energy storage/photovoltaic inverters. In terms of third-generation semiconductors, some of the company's SiC MOSFET products have been verified by customers and sold on a small scale, and some GaN HEMT products have been developed and passed reliability tests. The company's new products continue to break through. In the future, with the support of fabs, new products are expected to rely on existing customer resources to achieve rapid deployment, injecting momentum into the company's long-term development.

Investment advice: The company's product structure is being upgraded from MOSFETs to IGBTs, third-generation semiconductors, etc., and the application fields are making breakthroughs in the fields of new energy vehicles, photovoltaic energy storage, AI servers, etc., and future performance is expected to maintain steady growth. Considering the increase in gross margin driven by improvements in the company's product structure, we raised the company's net profit forecast for 2024-2026 from 408/4.87/604 million yuan to 432/533/660 million yuan, corresponding EPS of 1.45/1.79/2.21 yuan. Referring to the industry's comparable company valuation and its own performance growth rate, we gave the company 35 times PE in 2024, corresponding to a target price of 50.7 yuan/share, maintaining a “strong push” rating.

Risk warning: Industry sentiment falls short of expectations; product expansion falls short of expectations; product restructuring falls short of expectations; industry competition intensifies.