Description of the event

The company released its 2024 semi-annual report. The company achieved operating income of 0.515 billion yuan in the first half of the year, an increase of 62.37% year on year; net profit to mother was 0.143 billion yuan, an increase of 124.93% year on year. In Q2, the company achieved revenue of 0.267 billion yuan in a single quarter, up 54.02% year on year and 8.18% month on month; realized net profit to mother 0.092 billion yuan, up 118.24% year on year and 79.82% month on month.

Incident reviews

The recovery in market demand combined with the rapid increase in the company's multi-product shipments, which led to a significant improvement in the company's performance. In the first half of 2024, the company achieved revenue of 0.515 billion yuan, a year-on-year increase of 62.37%. The first half of the year's revenue achieved the best results in the same period in history, mainly due to the recovery in downstream market demand, and the company's continuous technology upgrades and product promotion and sales. In the first half of the year, the company's shipments of SPD products, NOR Flash products, and automotive-grade EEPROM products all achieved rapid year-on-year growth. Among them, NorFlash products sold more than 0.17 billion units, and shipments increased by more than 100% in the second quarter. At the same time, the company carried out successful product line iterations on industrial-grade EEPROM products and voice coil motor driver chip products, which led to a relatively rapid year-on-year increase in product shipments.

The share of sales of high value-added products has increased, and profitability has increased significantly. In the first half of 2024, the company's gross margin was 54.70%, up 7.22pcts year-on-year. The increase in gross margin was mainly due to the increase in sales share of the company's SPD products, automotive electronics, industrial control and other high-value-added market products. In the first half of 2024, the company actively expanded key overseas markets such as Europe, South Korea, and Japan, and successfully introduced automotive-grade EEPROM products to many of the world's leading automotive electronics Tier 1 suppliers. In the first half of 2024, the company's net profit margin was 26.76%, up 9.25pcts year on year. The first reason was that the company's gross margin increased, and the company's sales expense rate/management expense rate/R&D expense ratio all declined. The first half of 2024 was 5.12%/5.12%/15.96%, respectively, -0.80pct/-1.59pcts/6.88pcts, respectively.

Expansive NOR Flash space and increased DDR5 penetration rate drive growth in SPD shipments to help continue to improve performance. The company supports DDR5 memory module SPD products, which have been used on a large scale among major memory module manufacturers in the industry, and has a first-mover advantage. As the PC market recovers and the server market benefits from the increase in shipments brought about by the explosion in computing power demand, the demand and penetration rate of DDR5 memory modules will continue to increase. According to TrendForce data, the DDR5 penetration rate is expected to reach 60% in the third quarter. Combined with improvements in the inventory levels of downstream memory module manufacturers, the company's SPD business is expected to continue to grow month-on-month. At the same time, NOR Flash products are the fastest growing products in the company's shipments, and the company's more mature players still have plenty of room for growth. Coupled with the rapid iteration of the company's NOR Flash products, as the company's market share and brand influence continue to increase in the future, it is expected that along with SPD products, it will help the company's performance continue to grow in the future.

Investment advice

The company's 2024-2026 EPS is estimated to be 2.14/3.24/4.39 yuan, corresponding to the company's closing price of 48.9 yuan on August 9, 2024, and the 2024-2026 PE is 22.9/15.1/11.1 times, respectively (comparable to the company's 2024-2026 PE consistent expectations of 38.9/28.4/23.1 times, respectively). Considering the short-term increase in DDR5 penetration rate leading to an increase in SPD product sales, the long-term increase in the company's NOR Flash market share, and the increase in the share of high additional products such as automotive-grade EEPROM, the “buy-A” rating was raised.

Risk warning

Product promotion falls short of expected risks, DDR5 penetration falls short of expected risks, international trade frictions further exacerbate risks, macroeconomic changes, and exchange rate changes.