Matters:

1) In the first half of 2024, the company achieved revenue of 3.609 billion yuan (yoy +21.69%), net profit to mother of 0.517 billion yuan (yoy +53.88%), and net profit of 0.473 billion yuan (yoy +71.87%) after deduction.

2) In 24Q2, the company achieved operating income of 1.982 billion yuan (yoy +21.99%, qoq +21.78%), net profit of 0.312 billion yuan (yoy +67.95%, qoq +52.46%), net profit of 0.29 billion yuan (yoy +99.25%, qoq +57.66%) after deducting net profit from mother.

Commentary:

Downstream demand has recovered, and profitability continues to recover. In the first half of 2024, the company achieved revenue of 3.609 billion yuan, a year-on-year increase of 22%; net profit to mother was 0.517 billion yuan, an increase of 53.9% over the previous year. Revenue growth is mainly due to: 1) Flash: After experiencing sluggish market demand and gradual inventory removal in 2023, demand for 24H1 downstream terminals rebounded, achieving growth in the consumer market, Netcom and other markets, driving a significant year-on-year increase in overall shipments and revenue. At the same time, in the automotive market, shipments of the company's automotive flash memory products maintained good growth. 2) DRAM: The market expansion effect is obvious, and the total number of customers sold has further increased, driving sales of DDR3L and DDR4 products; at the same time, improvements in the supply and demand pattern are driving up the price of niche DRAM. 3) MCU: Launched new products in the Low Power Consumption Series, Value Series, and High Performance Series. The consumer and industrial markets contributed to the top two revenue areas in the first half of the year. Among them, demand for photovoltaics, industrial control, and optical modules drove an increase in revenue contributions in the industrial sector. The profit level increased, and the 24Q2 net interest rate reached 15.75% (yoy+4.31pct, qoq+3.17pct). As market sentiment recovers further and the competitiveness of the company's various product lines continues to improve, profit margins are expected to continue to recover.

Deepen the construction of product matrices and implement diversified platform-based development strategies. The company continues to maintain a business strategy centered on market share, continuously invest in R&D and product iteration, continuously enrich the product matrix, optimize product costs, and further enhance the competitiveness of each product line:

1) Flash: As the second-largest SPI NOR Flash company in the world, the company's Nor Flash products have been further improved in large capacity, high performance, high reliability, high safety, low power consumption, low voltage, and small packages to meet the needs of customers in various product applications in different application fields. The company SPI NAND Flash has achieved full product coverage in the fields of consumer electronics, industry, automotive electronics, etc.

2) DRAM: In the first half of 2024, the company's DDR4 8Gb products have been successfully distributed and samples have been provided to customers. Using 4Gb/8Gb capacity DDR4 and 1Gb/2Gb/4Gb capacity DDR3L, they are widely used in network communications, televisions, set-top boxes, industry, smart homes, etc.

3) MCU: The company is the No. 1 32-bit Arm in China? General purpose MCU supplier. At present, 51 product lines and more than 600 products have been successfully mass-produced, achieving full coverage of mainstream application markets such as general purpose, low cost, high performance, low power consumption, and wireless connectivity. In the first half of 2024, the company continued to diversify its product line and launched multiple series of products, including high-performance products for industrial and other applications, value-added products for industrial and consumer electronics, and low-power products for smart metering.

4) Sensors: Over the years, the company's sensor products have commercialized front/rear/side capacitors and optical solutions in many flagship, high and mid-range smartphones, and have become the mainstream solution provider in the market. In the first half of 2024, the company launched a PC fingerprint recognition solution, marking the further expansion of the company's fingerprint recognition solution into the PC field. In the future, the company will continue to promote product optimization and upgrading, and further expand its diverse layout in the fields of PCs, mobile phones, wearables, mobile health, and IoT.

The actual controller proposed to buy back the shares and cancel them, demonstrating confidence in long-term development. Mr. Zhu Yiming, the controlling shareholder, actual controller, and chairman of the company, proposed that the company repurchase shares through centralized bidding transactions based on confidence in the company's future continuous development and recognition of the company's long-term value. After the repurchase is completed, the company's registered capital will be cancelled and the company's registered capital reduced in accordance with the law. The total capital for the repurchase of shares should not be less than RMB 0.15 billion (inclusive), not more than RMB 0.2 billion (inclusive). This repurchase and cancellation is conducive to the long-term, stable and sustainable development of the company, while safeguarding the interests of the majority of shareholders and enhancing investor confidence.

Investment advice: The company is a domestic NOR Flash and MCU leader, and the DRAM business is progressing steadily. Considering that the downturn cycle of semiconductors in this round is U-shaped, and the bottoming period is slightly longer than the previous round, we have appropriately revised the profit forecast data. The company's net profit for 2024-2026 is 1.15/1.62/1.97 billion (original value was 1.18/1.87/2.31 billion). Based on the industry's comparable valuation level of companies and the company's leading position, we will give a 25-year 40xPE with a target price of 97.57 yuan, maintaining a “strong push” rating.

Risk warning: Downstream demand falls short of expectations; new product development and process iteration fall short of expectations; market competition intensifies to the current semiconductor downturn cycle, and the bottom cycle is slightly longer than the previous round. We have appropriately revised the profit forecast data. The company's net profit to the mother for 2024-2026 is 1.15/1.62/1.97 billion (original value was 1.18/1.87/2.31 billion). Based on the valuation level of comparable companies in the industry and the dominant position of the company, the target price is 97.57 Yuan, maintaining a “strong recommendation” rating.

Risk warning: downstream demand falls short of expectations; new product development and process iteration fall short of expectations; increased market competition