Incident: Recently, the company released its 2024 semi-annual report. In the first half of 2024, the company achieved revenue of 3.609 billion yuan, +21.69% year over year; net profit to mother 0.517 billion yuan, +53.88% year over year; net profit after deducting non-return to mother 0.473 billion yuan, +71.87% year over year. The second quarter of 2024 achieved revenue of 1.982 billion yuan in a single quarter, +21.78% year on month; net profit to mother 0.312 billion yuan, +67.95% year on year, +52.46% month on month; net profit without return to mother 0.29 billion yuan, +99.25% year on month and +57.66% month on month.

Key points of investment:

24H1's performance recovered strongly, and profitability improved markedly. After experiencing sluggish market demand and gradual inventory elimination in 2023, demand in the consumer and Netcom markets picked up in the first half of 2024, driving the company's memory chip product sales and revenue growth; the company continued to maintain a market-share-centered strategy, continued R&D investment and product iteration, and the competitiveness of multiple product lines continued to increase, promoting product sales and revenue growth. The company's 24H1 gross margin was 38.16%, up 4.73% year on year; the company's 24Q2 gross margin was 38.15%, up 8.70% year on year, down 0.01% month on month; company 24H1 net margin was 14.33%, up 3.00% year on year; 24Q2 net margin was 15.75%, up 4.31% year on year, up 3.17% month on month. The company has always attached great importance to R&D team building and R&D process management, and has maintained a high level of R&D investment. 24H1 invested 0.637 billion yuan in R&D, accounting for about 17.65% of revenue.

Downstream demand for Flash products picked up, and the DRAM product market expanded smoothly, driving the continuous recovery of the company's memory business. The company's memory products are divided into NOR Flash, SLC NandFlash, and DRAM. In terms of flash products, the company's SPI NOR Flash ranks second in the world. SPI NAND Flash has achieved product coverage of all categories in the fields of consumer electronics, industry, automotive electronics, etc.; the company's automotive-grade GD25/55 SPI NOR Flash and GD5F SPI NAND Flash products have achieved full capacity coverage of 2Mb-8Gb, and have all passed AEC-Q100 certification, have been widely certified by car manufacturers and Tier 1, and are used in intelligence Cockpits, intelligent driving, intelligent connectivity, and three-electric systems for new energy electric vehicles; due to a recovery in demand for 24H1 downstream terminals, the company continued to grow in consumer, Netcom and other markets, driving the overall shipment volume and revenue of Flash products to a significant year-on-year increase.

In terms of DRAM products, from the supply side, overseas original manufacturers have gradually increased their investment in high-end products such as HBM and DDR5. Accordingly, supply in categories such as DDR3 and DDR4 has decreased, and niche DRAM as a whole showed a contraction in supply; demand-side consumer electronics and other fields have picked up, and the improvement in the supply and demand pattern has driven up the price of 24H1 niche DRAM products; 24H1 has achieved obvious market expansion results for R products, and the number of total sales customers has further increased. The company's DDR3L and DDR4 products now cover the network Telecommunication, TV In other application areas and major customer groups, 24H2 shipments are expected to continue to grow.

MCU continues to enrich its product matrix, and shipments of automotive-grade products have increased dramatically. In the first half of 2024, the company launched the GD32L235 low-power series, GD32E235 value-added series, and GD32F5 high-performance series MCU products to further enrich the product line matrix.

The consumer and industrial markets are the company's top two revenue contributors to 24H1. Driven by demand for photovoltaics, industrial control, optical modules, etc., the industrial sector's revenue contribution has increased, and shipments have also increased year-on-year in the consumer, automotive, network communication, and storage computing sectors. The company's vehicle regulation MCU products have established and maintained deep cooperative relationships with many leading domestic and international Tier 1 companies. Product applications include headlight solutions, AVAS solutions, wireless charging solutions, automotive DC brushless motor control systems, automotive instrument panels, etc.; currently, the company's vehicle regulation product solutions have been applied in batches to many automobile manufacturers, and overall sales have increased significantly year-on-year. As a leading manufacturer of 32-bit MCU products in China, the company's GD32 MCU products have successfully mass-produced 51 product lines and more than 600 MCU products, and continue to enrich the product matrix. It continues to expand in industrial, automotive and other markets, and 24H2 MCU shipments are expected to continue to grow.

Profit forecasting and investment advice. The company is a leading domestic memory and MCU company. The downstream demand for 24H1 Flash products is picking up, the DRAM product supply and demand pattern improvement and market expansion results are remarkable, driving the continuous recovery of the company's memory business. The company's MCU continues to enrich its product matrix and continue to develop in industrial, automotive and other markets. 24H2 MCU shipments are expected to continue to grow. The company's sensor product 24H1 has achieved year-on-year growth. We expect the company's 24-26 revenue to be 7.319/9.033/10.648 billion yuan. Net profit from 24-26 was 1.027/1.472/1.838 billion yuan, the corresponding EPS was 1.54/2.21/2.76 yuan, and the corresponding PE was 47.96/33.46/26.80 times, maintaining the “buy” rating.

Risk warning: Industry competition increases risk; downstream demand recovery falls short of expected risk; new product development progress falls short of expected risk; new product market expansion falls short of expected risk.