The PB valuation is still at a historically low level. It is expected to improve quarterly in 2024. It is expected to improve quarterly in 2024. Taking into account the increase in the company's capacity utilization rate driven by power management and CIS demand, we raised the 2024-2025 net profit forecast from 1.01/119 million US dollars to 1.52 billion US dollars, and the net profit forecast for 2026 was 228 million US dollars. The corresponding year-on-year growth rates were -45.9%/24.2%/21.3%, respectively, and the corresponding EPS was 0.11/0.17/0.26 US dollars, respectively. The current stock price of HK$18.02 corresponds to 21.8/13.6/8.8 times PE in 2024-2026, and is at a historical low valuation level corresponding to 0.6 times PB in 2024. Considering marginal improvements at the company's management level, it is expected that along with the recovery in industry sentiment and improvements in its own profits, it is expected to drive its valuation repair and maintain the “gain” rating.

2024Q1's performance bottomed out and rebounded, with a weak month-on-month improvement of 2024Q1. The company's revenue was 460 million US dollars, up 1% month-on-month, close to the lower limit of the company's guidance range of 4.5-50 billion US dollars. Mainly because the company's price adjustments in 2023 were still partially reflected in 2024Q1, which led to a 7.2% month-on-month decline in ASP; shipments increased 7.9% month-on-month, mainly due to increased demand for power management due to AI servers and fast charging, etc., as well as a recovery in CIS demand. 2024Q1 Management and logic RF revenue increased 13%/14% month-on-month, respectively. Power management and CIS demand led to an increase in the company's capacity utilization rate. The 8-inch and 12-inch capacity utilization rates increased from 91.0%/77.5% in 2023Q4 to 100.3%/84.2%, respectively. The 2024Q1 gross profit margin was 6.4%, slightly higher than the upper limit of 3%-6% in the company's guidance range, an improvement of 2.4 percentage points over the previous month. The analysis was mainly due to the decline in the negative impact of the 2023Q4 inventory price reduction preparations.

2024Q1's operating profit margin was -10.6%, up 6.2 percentage points from month to month.

Benefiting from power management and CIS, the 2024Q2 performance is expected to continue to improve month-on-month, taking into account the full load of power management and CIS production capacity, and improvements in demand for nor flash and low voltage Mos, but the MCU recovery is still early and demand for high-voltage power is still weak. The company guides 2024Q2 revenue of 4.7 to 50 billion US dollars, corresponding to a 2%-9% month-on-month increase, of which prices may still face adjustment pressure in the short term; the company indicates a gross margin range of 6%-10%, corresponding to continued month-on-month improvement. We expect the company's operating losses to narrow further in 2024Q2, mainly due to the gradual stabilization of product prices and the company's further increase in capacity utilization and product structure through capacity allocation.

Risk warning: The power pattern deteriorates, production capacity expansion falls short of expectations, and the risk of product price reduction.