According to the Zhitong Finance and Economics app, ZhongYin International releases research report, maintaining a buy rating on Beck Micro (02149) with a target price of HKD 49.8. Although Beck Micro's gross margin (51.3%) in the first half of the year was lower than the bank's full-year forecast of 53.8%, this was mainly due to accounting adjustments (increased provisions for inventory write-downs). The bank believes that the company's gross margin is expected to remain at the level of 53% to 55% in 2024-2026. Currently, Beck Micro's forecast P/E ratio for 2024 and 2025 is only 10 times and 7 times, respectively, which are very attractive valuations. The Bank is bullish on Beck Micro, and the company's strong performance proves that its intrinsic growth logic has not changed.

CMB International's main points are as follows:

On August 15th, Beck Micro released a strong first-half financial performance report.

The company's revenue increased by 42.1% year-on-year to RMB 0.291 billion, mainly due to: 1) further coverage of industrial-grade product categories (the number of product models increased from about 400 at the end of 2023 to over 500 by the end of the first half of 2024); 2) expansion and deepening of the company's cooperation with major customers (revenue from the new energy platform in the first half of 2024 accounted for 30% of the company's total revenue); and 3) expansion of the distribution network (the company has expanded into several new distributors), which reduces dependence on a single customer.

The company's net profit increased by 46.3% year-on-year to RMB 67 million. In the first half of 2024, its revenue and net profit respectively accounted for 45% and 46% of the bank's full-year forecast (compared with 44% and 42% in the first half of 2023). Due to an increase in provisions for inventory write-downs, the company's gross margin in the first half of 2024 fell from 55.4% for the whole of 2023 to 51.3%. Excluding this impact, the company's gross margin compared to the same period last year did not change significantly (55.2% for the first half of 2023). The net profit margin for the first half of 2024 was 23.1% (compared with 22.4% and 23.5% for the same period last year and 2023, respectively).

The bank expects that with the continuous expansion of product categories, the company's revenue will continue to maintain strong growth.

Beck Micro's revenue has achieved substantial growth in the past four years (with a compound annual growth rate of 73.6% from 2020 to 2023), and one of the core driving factors is the rapid expansion of the variety of simulated IC pattern wafer products (the number of varieties covered from 8 to 45 to 157 to about 400 from 2020 to 2023). By the end of the first half of 2024, the company had over 500 product models. The continuous growth of product categories reflects the company's research and development capabilities and the execution ability of the management team. The bank expects Beck Micro's sales growth rates to reach 40.2% and 37.8%, respectively, in 2024 and 2025 (consistent with previous expectations).

In addition, Beck Micro has strengthened its cooperation with distributors. In the first half of 2024, 90% of the company's revenue came from distributors (compared with a contribution rate of 87.5% in 2023). The bank believes that it is wise for Beck Micro to choose a development strategy of close cooperation with distributors at the current stage of development. At the same time, the company has expanded into several new distributors in the first half of the year, reducing dependence on a single customer.

Potential risks: 1) Economic fluctuations lead to a decline in demand; 2) Changes in the company's relationships with core customers or suppliers lead to negative impacts on performance and profitability; and 3) the research and development speed of new products is not as expected.