Demand in the consumer/Netcom market picked up, net profit to mother increased 52% month-on-month in 24Q2, and profitability improved.

24H1's revenue was 3.609 billion yuan, up 21.69% year on year, net profit to mother was 0.517 billion yuan, up 53.88% year on year. After deducting net profit of non-return to mother 0.473 billion yuan, up 71.87% year on year. The year-on-year increase in revenue was mainly due to a recovery in consumer/Netcom market demand and an increase in memory chip sales.

24Q2's single-quarter revenue was 1.982 billion yuan, up 21.78% month-on-month, net profit up 0.312 billion yuan, up 52.46% month-on-month, net profit after deducting 0.29 billion yuan, up 57.66% month-on-month; gross profit margin 38.15%, slightly down 0.01pct month-on-month, net profit margin 15.75%, up 3.17pct month-on-month, with net profit margin of 14.62% month-on-month, up 3.33pct month-on-month. The month-on-month increase in net interest rates mainly benefited from a 2.41 pct month-on-month decrease in R&D expenses as revenue increased month-on-month.

Niche storage volumes and prices have risen sharply, and the recovery in demand in the industrial sector has driven a year-on-year increase in MCU shipments.

24H1 memory chip revenue was 2.605 billion yuan, accounting for 72% of total revenue, up 115% year over year; gross profit margin was 39.24% (33.00% in '23). The year-on-year increase in revenue was mainly due to the recovery in demand in the 24H1 consumer/Netcom market, and Flash shipments increased sharply year over year.

MCU 24H1, the second-largest business, had revenue of 0.805 billion yuan, accounting for 22% of total revenue, up 187% year over year; gross profit margin 38.46%. The year-on-year increase in revenue was mainly driven by demand for photovoltaic/industrial control/optical modules, etc., and a year-on-year increase in shipments was also achieved in the fields of consumer/automotive/network communication and storage computing.

The third largest business sensor, 24H1, had revenue of 0.192 billion yuan, accounting for 5% of total revenue, up 9% year on year; gross profit margin of 19.95%.

It is expected that the prices of the three major product lines of 24H2 will remain stable, accelerating the increase in niche storage & MCU market share.

In terms of memory chips, the company expects 24H2 prices to remain stable. (1) DRAM: The company's self-developed DDR3L and DDR4 have covered major customers in NetCommunication/TV fields, and shipments are expected to continue to increase. Meanwhile, 8GbDRAM has been successfully streamed and samples have been provided to customers. (2) Flash: The NAND capacity covers 1Gb to 8Gb, achieving full category coverage in consumer/industrial/automotive fields, which is expected to increase market share. On the MCU side, 24H2 is expected to benefit from a recovery in industrial market demand. In addition, vehicle specification product solutions have been applied in batches to many automobile manufacturers. As the company continues to launch new products, the MCU market share is expected to increase further.

“MCU+Storage+Sensor” three-wheel drive, maintaining the “Overweight” rating.

The company's Serial Nor Flash market share is the second largest in the world (2023), the MCU is seventh (2022), and self-developed DRAM is growing rapidly. The net profit for 24-26 is expected to be 1.054/1.47/1.914 billion yuan, respectively, corresponding to PE 50.1/35.9/27.6 times in 24/25/26, maintaining an “gain” rating.

Risk warning: industry fluctuation risk; supply chain risk; brain loss risk; exchange profit and loss risk, etc.