Beckwell announced strong first-half results on August 15. The company's revenue increased 42.1% year over year to 0.291 billion yuan, mainly due to: 1) further coverage of industrial-grade product categories (product models increased from about 400 at the end of 2023 to more than 500 at the end of the first half of 2024); 2) expansion and deepening partnerships between the company and major customers (NEV platform revenue accounted for 30% of the company's total revenue in the first half of 2024); 3) the expansion of the distribution network (the company expanded several new distributors), reducing its dependence on a single customer. The company's net profit increased 46.3% year over year to 67 million yuan. Revenue and net profit for the first half of 2024 represented 45% and 46% of our full-year forecast, respectively (44% and 42% for the first half of 2023). The company's gross margin for the first half of 2024 fell to 51.3% from 55.4% for the full year of 2023 due to increased preparation for inventory declines. Excluding this effect, the company's gross margin did not change significantly compared to the same period last year (55.2% in the first half of '23). The net interest rate for the first half of 2024 was 23.1% (compared to 22.4% and 23.5% in the same period last year and 2023). Becker Micro is a leading supplier of industrial-grade analog IC pattern wafers in China. It has self-developed EDA software and a reusable IP library. We are optimistic about Becker Micro. The company's strong performance proves that its internal growth logic has not changed. The “buy” rating of Becker Micro was maintained, and the target price was unchanged at HK$49.8, based on 19 times the 2024 projected price-earnings ratio.

We expect the company's revenue to continue to grow strongly as the product range continues to expand. Becker Micro's revenue has grown substantially over the past four years (CAGR of 73.6% in 2020-2023), and one of the key drivers is the rapid expansion of analog IC pattern wafer products (covering the product range of 8 models/45 models/157 models/about 400 models in the 2020-2023 period, respectively). By the end of the first half of '24, the company had more than 500 product models. The continuous growth of the product range reflects the company's R&D strength and the execution ability of the management team. We expect Becker Micro's sales growth rates to reach 40.2% and 37.8% in 2024 and 2025, respectively (in line with previous expectations). Additionally, Becker Micro's cooperation with distributors has been strengthened. In the first half of 2024, 90% of the company's revenue was contributed by distributors (compared to 87.5% in 2023). We believe that at this stage of development, Beckway is wise to choose a development strategy of close cooperation with distributors. At the same time, the company expanded several new distributors in the first half of the year, reducing its dependence on a single customer.

Maintaining a “buy” rating, the target price remains unchanged at HK$49.8. Although Becker's gross profit margin for the first half of the year (51.3%) was lower than our full-year forecast of 53.8%, this was mainly affected by accounting adjustments (an increase in inventory price reduction preparations). We believe the company's gross margin is expected to remain at 53%-55% in 2024-2026. We maintain our “buy” rating on Becker Micro. The target price is unchanged at HK$49.8. Based on 19 times the predicted price-earnings ratio for 2024, it corresponds to the average 1-year historical forward price-earnings ratio of Hong Kong listed companies. Currently, Becker Micro's projected price-earnings ratio for 2024 and 2025 is only 10 times and 7 times, making the valuation very attractive. Potential risks: 1) demand declines due to fluctuations in economic conditions; 2) changes in the company's relationships with core customers or suppliers have a negative impact on performance and profitability; and 3) development of new products falls short of expectations.