Incident: On August 25, the company released its 2024 semi-annual report. 1H24 achieved revenue of 1.303 billion yuan, YOY -32.2%; net profit to mother of 0.245 billion yuan, YOY -20.8%; deducted non-net profit of 0.238 billion yuan, YOY -16.8%. The performance was in line with market expectations. The company was affected by demand-side adjustments in the industry, and the revenue of T/R modules and RF modules decreased year-on-year. Our comprehensive review is as follows:

2Q24 net profit improved slightly month-on-month; 1H24 profit margin increased. 1) Single-quarter perspective: In 2Q24, the company achieved revenue of 0.609 billion yuan, down 50.21% year on year; realized net profit of 0.124 billion yuan, down 35.79% year on year, up 2.49% month on month; realized deducted non-net profit of 0.119 billion yuan, down 33.40% year on year and up 0.85% month on month. The profit side declined year over year in 2Q24, but there was a slight improvement from month to month. 2) In terms of profit margin: 1H24's gross margin increased by 3.6ppt to 35.1% year on year, for two consecutive years; net margin increased 2.7 ppt to 18.8% year on year, the highest level in the same period in history since 2021.

1H24 RF chip revenue is growing rapidly; applications in the field of satellite communications are expanding. 1H24, by product:

1) T/R components and RF modules: achieved revenue of 1.169 billion yuan, YOY -36.50%. The main product performance in terms of linearity, efficiency, and reliability of the next-generation metal-ceramic packaged GaN RF modules and plastic PAM products launched by the company is comparable to the level of mainstream international products, and the product coverage, variety and technology have reached the level of advanced international manufacturers. 2) RF chip: achieved revenue of 0.088 billion yuan, YOY +35.68%. The company has developed and completed RF amplification chip products such as WiFi and mobile phone PA, and is currently developing new products based on advanced domestic semiconductor processes. In terms of RF control chips, the company mass-produces RF switches and antenna tuner products used in terminals. Multiple RF switches are introduced by customers and delivered in batches. DiFEM-related chips are mass-produced and delivered, and product performance has reached the advanced level in China. In addition, the company has carried out technical research and product development work for various RF integrated circuits in the field of satellite communications, and various products have been introduced by customers. 3) Other chips: achieved revenue of 0.027 billion yuan, YOY +74.50%.

Continued promotion of various R&D projects; net operating cash flow increased significantly year-on-year. The cost ratio increased by 6.3ppt to 18.1% year-on-year during the 1H24 period, with management expenses increasing by 2.1ppt to 4.9% year-on-year; R&D expenses increasing by 4.5ppt to 13.8% year-on-year. By the end of 2Q24, the company: 1) accounts receivable and notes were $2.741 billion, down 17.1% from the end of 1Q24; 2) inventory was $0.383 billion, down 19.3% from the end of 1Q24; and 3) contract liabilities were $0.021 billion, down 17.1% from the end of 1Q24. The net cash flow from 1H24 operating activities was 0.361 billion yuan, YOY +154.9%, mainly due to an increase in cash received by the company after maturity and acceptance of its notes receivable.

Investment advice: The company is a leading domestic enterprise that can supply active phased array T/R components and serialized RF integrated circuit products in batches. With the development of phased array technology, the evolution of next-generation mobile communication technology, and technological innovations such as satellite communication and low-altitude economy, the company's core business will usher in rapid growth. We expect the company's net profit from 2024 to 2026 to be 0.534 billion yuan, 0.665 billion yuan, and 824 million yuan, respectively. The current stock price corresponds to 2024-2026 PE 44x/35x/28x, respectively. We maintain a “Recommended” rating based on the company's technological leadership in the industry and its business layout in new fields.

Risk warning: downstream demand is slowing down, product prices are falling, project construction falls short of expectations, etc.