Jinghe Integrated 1H24's revenue increased year over year. Net profit reversed year on year Jinghe released the 2024 mid-year report performance forecast. 1H24's revenue is expected to be 4.3-4.5 billion yuan, up 44.8% -51.5% year on year; net profit to mother is 0.15-0.22 billion yuan, up 0.19-0.26 billion yuan year on year to achieve reverse loss. Main factors: 1) Demand for 1H24 downstream televisions, smartphones and other consumer electronics has maintained a recovery trend, driving the company's DDIC and CIS OEM demand to recover, and production capacity utilization is full; 2) The company continues to enrich its product structure to make CIS the second-largest main product, and 1H24's revenue share has increased rapidly.

Taking into account the company's increased investment in advanced manufacturing processes and new CIS product research and development, the 2024/2025/2026 net profit forecast was lowered to 0.591/0.887/1.411 billion yuan (previous value: 0.865/1.221/1.423 billion yuan). 1.68x 24-year PB (2.2x discount compared to the industry average, mainly due to DDIC price pressure and higher depreciation during the active expansion of production capacity), maintaining the target price of 18.45 yuan and the purchase rating.

2Q24 review: Q2 revenue fluctuated slightly due to sales volume and DDIC price pressure. New products are progressing smoothly. The company expects Q2 revenue to be 2.07-2.27 billion yuan, with a median increase of 15.5% year-on-year, but a 2.5% month-on-month decline, mainly due to fluctuations in the company's sales volume and DDIC OEM prices are still under pressure due to industry competition.

In Q2, the company successfully achieved the self-developed 40nm high voltage process OEM OLED display driver chip to successfully light up the panel, and Q2 has begun mass production in small batches. While the company continues to consolidate its DDIC advantage, it also promotes product diversification to enhance competitive advantage. The CIS platform actively cooperates with major customers. Following mass production of 90nm CIS and 55nm stacked CIS, Jinghe announced on April 19 that it has mass-produced 55nm single-chip, high-pixel back-illuminated CIS, making a leap forward towards the middle and high-end of smartphones. CIS's revenue contribution increased steadily in 2Q.

2H24 outlook: Major CIS customers drive 55nm growth, and focus on 40nm LED driving progress. We believe that demand for 2H24 downstream consumer electronics such as TVs and smartphones will continue to pick up, and the company's capacity utilization rate is expected to continue at full production since March, driving the company's sales volume to maintain rapid growth.

Due to strong demand for the company's CIS platform, the price increase was carried out in Q2, and combined with the optimization of the company's DDIC product structure, we believe it is expected to help the company achieve a steady upward trend in 2H24 ASP. Therefore, we are optimistic that the company's operating performance will continue to improve in the second half of the year. Recommended attention: 1) Major CIS customers continue to advance into smart phones and other fields, and the company actively cooperates with process platform development and production capacity support, which is expected to benefit. We expect the company's production capacity to grow to 167kwpm (+50k yoy) by the end of 2024, with a focus on 55nmbsi capacity expansion; 2) 2H24's 40nm LED platform production capacity is progressing steadily.

Maintain target price of $18.45 and “buy” rating

Considering the company's increased investment in advanced manufacturing processes and new CIS product research and development, we lowered the 2024/2025/2026 net profit forecast to 0.591/0.887/1.411 billion yuan (previous value: 0.865/1.221/1.423 billion yuan), corresponding to EPS of 0.29/0.44/0.70 yuan. Based on 24E BPS of 10.97 yuan, 1.68x PB was given, and the target price of 18.45 yuan and the purchase rating were maintained.

Risk warning: The semiconductor cycle is declining; OEM competition is intensifying; the risk that process platform development falls short of expectations.