Incident: The company released its report for the first quarter of 2024. During the reporting period, it achieved operating income of 543 million yuan, an increase of 64.89% over the previous year, and achieved net profit of 68 million yuan due to mother, reversal of losses over the previous year, and realized net profit of 66 million yuan after deduction of non-return to mother.

The recovery in industry demand led to a significant increase in the company's Q1 performance. The company achieved revenue of 543 million yuan in a single quarter in the 24Q1 quarter, up 64.89% year on year, down 20% month on month, and realized net profit of 68 million yuan to mother, reversing losses year on year, up 17.5% month on month. The company's profit level increased in the first quarter, with a gross profit margin of 34.68%, up 1.24 pct year on year and 1.65 pct month on month. Market demand recovered in the first quarter, business sentiment gradually picked up, and terminal customer inventories returned to normal, which led to a sharp increase in the company's performance.

Various AIoT industries are developing rapidly, and the automotive industry and other fields are growing rapidly over the same period last year. The company is a leading domestic AIoT SoC manufacturer. It has been deeply involved in the industry for many years. Based on the advantageous layout of AIoT's various technologies, products, and scenarios, the company is committed to providing downstream customers with an AIoT platform for multi-scenario computing. During the reporting period, the company achieved significant year-on-year growth in the fields of automotive electronics, industrial applications, machine vision, etc. In the field of automotive smart cockpits, the company is one of the few core suppliers in China. The flagship product RK3588M has been introduced in mainstream car manufacturers and mass-produced in high-end models; in terms of machine vision, the company's products have been widely used in various machine vision fields such as home, commercial, office, and industrial applications. As the trend of localization and miniaturization of AI models at the edge and terminals becomes more clear, the company's performance is expected to benefit from the rapid growth of AIoT intelligent development.

AI edge core computing power chips benefit from rapid growth in industry demand and broad room for growth. With the demand logic and technical logic of AIoT development as the core, the company continues to expand its product line and improve its product matrix, from the 8nm flagship chip RK3588 to a variety of mature SoCs, to provide customers with a full range of intelligent application processor chips from high-end performance to mid-range and low-end performance, as well as various peripheral chips and component products including interface chips, power management chips, wireless connection chips, etc. The company's main flagship chip, RK3588, is the current domestic flagship SoC product. Its performance is directly comparable to high-end overseas products. It is used in automotive, ARVR, ARM PCs, edge computing and other fields. It is one of the few localized choices for mid-range and high-end consumer scenarios, and is extremely scarce. In the field of edge computing servers, the company's business is progressing rapidly, and it is expected to enter a rapid growth channel with the AI wave. After 2 years of accumulation, the number of mass production customers and projects for the company's flagship chip RK3588 continues to increase, entering a period of rapid growth. The next new products, represented by the RK356X and RV1106/1103, are also accelerating. In addition, the RK3576, a new generation of high-end AIoT processors, was officially released in 24Q1, which will provide a solid foundation for 2024 performance growth.

Considering the uncertainty of downstream demand, we expect the company to achieve net profit of 349/538/709 million in 2024-2026 (487/707 million yuan 24-25 years ago), with corresponding PE valuations of 69/45/34 times, respectively, maintaining a “buy” rating.

Risk warning: Industry sentiment falls short of expectations; uncertainty about downstream progress; new product iterations fall short of expectations.