1H24 Results Exceed Market Expectations

1H24 Sirup achieved revenue of 0.507 billion yuan, a year-on-year decrease of 17.21%, and net profit to mother of -0.066 billion yuan, which turned into a year-on-year loss. 2Q24 achieved revenue of 0.307 billion yuan, a month-on-month increase of 53.33%, and net profit to mother -0.016 billion yuan, reducing losses month-on-month. 2Q24's comprehensive gross profit margin was 48.28%, up 0.65ppts month-on-month. The pan-industrial and wireless communication industries that the company focuses on are at the bottom of the cycle, but demand in the industrial sector gradually recovered, fundamentals reached an inflection point, revenue and gross profit gradually improved month-on-month, and 2Q24 sales reached a record high, exceeding market expectations.

Development trends

Market demand for some businesses grew rapidly, product structures continued to be optimized, and the market improved at the end of the cycle.

2Q24 Company revenue was $0.307 billion. According to the company announcement, due to the growth of the optical module, automobile, and AI server markets and improved demand in some pan-industrial markets, the company's average unit price and gross margin both rebounded. 1H24's product sales increased 27% year-on-year, and 2Q24 shipments reached a record high in a single quarter. We believe that improvements in the company's product structure can help the company transition to a high-growth market and bring higher profit margins.

The company invests heavily in R&D, and the development progress of automotive chips and other products is progressing rapidly. According to the company announcement, 1H24's R&D expenses were 0.258 billion yuan, accounting for 50.96% of current revenue, and the number of R&D personnel was 521. Current sensing amplifiers, converters, and high-speed CAN have been introduced in signal chain chips; in power management chips, the company has introduced automotive-grade enhanced isolated drivers, voltage reference chips, etc.; in embedded processors, the company's TPS32 mixed signal microcontroller has been delivered. According to the company's announcement, as of 1H24, the company has more than 160 automotive-grade chips, with a wide range of application scenarios such as smart cockpits, ADAS, body, and power. The company's self-built vehicle chip test site has been put into operation. We believe that investment in R&D will enable the company to obtain a richer product range, and the company's revenue and market position are expected to continue to improve.

The acquisition process of Chuangxin Micro continues to advance, focusing on synergy effects and changes in product structure. On August 16, the company released the previous draft report. According to the announcement, the main synergies of this acquisition are as follows:

1) Strengthen the company's power management chip field layout and broaden the downstream consumer market space; 2) Strengthen the strategic layout of “platform chip companies”, expand categories, complement R&D, etc., to provide customers with more comprehensive solutions. We believe that if this merger and acquisition succeeds, it will enhance the company's market position, enhance market space, strengthen R&D capabilities, acquire potential customers, and promote sustainable development.

Profit forecasting and valuation

We basically maintain the company's 2024/2025 revenue forecast of 1.32 billion/1.66 billion yuan and 2024/2025 profit forecast of 0.06 billion/0.23 billion yuan. Maintaining an outperforming industry rating, we maintain a target price of 108.69 yuan, which corresponds to a forward price-earnings ratio of 35 times in 2027 and a 9% discount rate, with 42.2% upside compared to the current stock price.

risks

Product development falls short of expectations; industry recovery falls short of expectations; mergers and acquisitions fall short of expectations.