2024H1 performance reduced losses, Q2 revenue recovered year on month, maintaining the 2024 semi-annual report issued by the “buy” rating company. 2024H1 achieved operating income of 5.274 billion yuan, YOY +17.83%; net profit to mother -0.025 billion yuan, YOY +39.53%; deducted non-net profit of 0.126 billion yuan, YOY -22.39%. Among them, 2024Q2 achieved operating income of 2.809 billion yuan, YOY +16.57%, QOQ +13.95%; net profit to mother - 0.01 billion yuan, YOY +96.21%, QOQ +36.86%; net profit after deducting non-return to mother - 0.007 billion yuan, YOY -113.60%, and QoQ -105.04% in a single quarter. Losses in 2024H1's performance were mainly due to (1) a decline in the fair value of the company's illiquid financial assets (stocks); (2) competition in the downstream tram and new energy markets has intensified, and prices of some products have dropped rapidly, and gross margin has decreased; (3) the subsidiary Silan Ming Gallium 6-inch SiC production line is still climbing in production capacity, and fixed costs such as depreciation are relatively high; (4) R&D investment continued to increase, and R&D expenses increased year-on-year. We reduced 2024-2026 net profit to mother by 0.206/0.443/0.891 billion yuan (previously adjusted 0.339/0.599/0.904 billion yuan), and the PE corresponding to the current stock price is 158.2/73.6/36.6 times. We are optimistic that the steady recovery in downstream demand will drive an overall improvement in the company's performance and maintain a “buy” rating.

Downstream applications continued to expand, and the company's multi-business revenue increased

By business: (1) The integrated circuit business 2024H1 achieved revenue of 2.035 billion yuan, accounting for 39% of total revenue, +29% over the same period. The revenue growth was mainly due to a marked acceleration in shipments of products such as IPM modules, AC-DC circuits, and 32-bit MCU circuits. Among them, IPM's revenue growth rate was relatively fast, with a year-on-year growth rate of 50%. The products have been widely used in inverter products for downstream home appliances, industrial and automotive customers, and future revenue is expected to increase; (2) The discrete device business 2024H1 achieved revenue of 2.399 billion yuan, accounting for 45% of total revenue, +4% over the same period last year. Among them, products such as superjunction MOSFETs and IGBT devices are growing rapidly. In addition to speeding up expansion in large-scale white power and industrial control markets, the company has begun to accelerate its entry into markets such as electric vehicles, new energy, and computing power. For example, the main motor drive modules for V-generation IGBTs and FRD chips independently developed by the company have now been delivered in batches to many domestic and foreign customers such as BYD and Geely; (3) the light-emitting diode business 2024H1 achieved revenue of 0.417 billion yuan, accounting for 8% of total revenue, +33% over the same period last year. In order to cope with falling product prices, the company is speeding up the launch of new Mini LED and Micro LED display chip products while also speeding up the launch of new products such as plant lighting chips, and future performance is expected to recover.

Risk warning: demand recovery falls short of expectations; customer imports fall short of expectations; technology development falls short of expectations.