Revenue for the second quarter increased 83% year over year, and profitability increased. In the first half of 2024, the company achieved revenue of 1.665 billion yuan (YoY +79.49%), net profit of 0.593 billion yuan (YoY +624.63%), net profit of 0.544 billion yuan (YoY +14178%), gross margin increased by 1.5 pct to 57.78%, R&D expenses increased 21% to 0.367 billion yuan, and R&D expenses fell 10.6 pct to 22% year on year. Among them, 2Q24 had revenue of 0.928 billion yuan (YoY +83%, QoQ +26%), net profit of 0.37 billion yuan (YoY +495%, QoQ +66%); net profit after deducting non-return to mother 0.325 billion yuan (YoY +9133%, QoQ +48%), a quarterly high; gross margin of 57.83% (YoY -1.0pct, QoQ +0.1pct), net margin of 39.86% (YoY+27.6pct, QoQ +9.6pct), the improvement in profitability was mainly due to a decrease in the rate during the period.

Revenue from interconnect chips hit a quarterly high in the second quarter, and gross margin increased 2.75 pcts month-on-month. By business, in the first half of 2024, the company's interconnect chip revenue was 1.528 billion yuan (YoY +67.89%), accounting for 92%, and gross margin was 62.43%; the revenue of the Jinjue server platform was 0.13 billion yuan (YoY +846%), accounting for 8%, and gross margin of 3.87%. Among them, revenue from interconnect chips in the second quarter was 0.833 billion yuan, up 19.92% month-on-month, a record high for this product line. On the one hand, revenue growth was driven by increased DDR5 penetration, which drove the revenue growth of memory interface and module supporting chips, and on the other hand, the revenue of the three new high-performance “capacity” chip products more than doubled month-on-month in the second quarter, totaling about 0.13 billion yuan; thanks to the increase in DDR5 penetration and the volume of new products, the gross margin of interconnect chips in the second quarter was 63.68%, up 2.75 pcts from month to month.

Steadily promote new product development and iterative upgrading, and broaden product categories. In terms of interconnect chips, the company released DDR5 fourth-generation RCD chips and sent samples to memory module manufacturers. It is developing DDR5 fifth-generation RCD chips and second-generation MRCD/MDB chips; pioneering trial production of DDR5 CKD chips and actively advancing preparations before large-scale shipment; the development and verification of key IPs for PCIe 6.0 Retimer chips has made significant progress, and has promoted the engineering development of PCIe 6.0 Retimer chips in an orderly manner; completed the development of mass production versions of clock generator chips. It is also promoting preparations before mass production, and at the same time starting research and development of clock buffer chips. In terms of the Jinjue server platform product line, the sixth-generation Jinjue CPU was released in June 2024, and another new product, data protection and trusted computing acceleration chips, was officially released in the same month.

Investment advice: The scale of the new product was shipped smoothly, maintaining the “better than the market” rating. We expect the company's net profit to be 1.354/1.941/2.641 billion yuan in 2024-2026 (previous value was 1.348/1.938/2.638 billion yuan), and the PE corresponding to the stock price on August 26, 2024 is 45/32/23x, respectively. The company's new products were shipped smoothly on a large scale and maintained a “superior to the market” rating.

Risk warning: New product development falls short of expectations; customer verification falls short of expectations; demand falls short of expectations.