Incident: On August 26, 2024, the company released its 24-year semi-annual report. 24H1 achieved revenue of 2.391 billion yuan, +15.18% year-on-year; net profit to mother was 0.207 billion yuan, +143.62% year-on-year. Looking at a single quarter, 24Q2 achieved revenue of 1.333 billion yuan, +16.73% year-on-month, and +25.98% month-on-month; net profit to mother of 0.134 billion yuan, +402.02% year-on-year, and +84.23% month-on-month.

The performance exceeded market expectations. 24H1's performance increased dramatically, mainly due to: 1) Sales in key application sectors increased dramatically, with revenue in the automotive electronics sector +68%, communications sector +35%, and industrial control sector +18%. At the same time, emerging market sectors such as computing power, energy storage, and drones continued to break through, and products continued to be introduced to new customers. 2) Overseas market expansion has achieved new results, customers in the Asian, European and American markets have made great progress, and the brand's international influence continues to increase.

The gross margin increased dramatically, and the expense ratio fluctuated slightly during the period. 1) Gross profit margin: 24H1 company's gross margin was 19.92%, +6.95pct year-on-year. Among them, 24Q2 gross margin was 22.39%, +7.88pct yoy, and +5.60pct month-on-month. The year-on-month increase in gross margin was mainly due to the recovery in operating rate. 2) Period expenses: The 24H1 company's fee rate for the period was 9.70%, +2.01pct year-on-year. Among them, the sales, management, R&D, and financial expenses ratio was 1.70%/6.15%/4.19%/-2.33%, +0.17/+0.20/-0.76/+2.39pct year-on-year.

The technical level continues to improve, and high-end products continue to make breakthroughs. 1) Continue to increase investment in R&D. The high-end MLCC pilot platform, the high-end electronic material platform, the thin film micro-nano platform, and the reliability testing and analysis platform have all been built and put into use, further consolidating the independent research and development capabilities of the entire industry chain of materials, processes and products. 2) Solve multiple key material challenges. High-temperature and high-pressure porcelain powder for high-end MLCCs has been developed to greatly improve the pressure resistance and reliability of medium- and high-capacity MLCCs; self-developed roller printing paste, laminated inductor internal electrode paste, and zero-ohmic resistance electrode paste have been mass-produced, effectively reducing raw material costs. 3) Break through a number of key technologies for high-end products. Breakthroughs have been made in automotive coaxial transmission inductor technology; drone application technology continues to expand, and products such as integrated inductors, 01005 ultra-miniature inductors, alloy resistors, and MLCC have been launched.

Profit forecast: Considering the company's continuous breakthroughs in high-end applications. We expect net profit to be 0.505, 0.789, and 1.061 billion yuan respectively in 2024-26, maintaining a “buy” rating.

Risk warning: Terminal demand recovery falls short of expectations; mass production of high-end products falls short of expectations, etc.