The profit side turned profit year over year in 24Q2, and revenue from mid-range and high-end products increased significantly. Tongfu Microelectronics announced its 2024 semi-annual report. The company 24H1 achieved operating income of 11.08 billion yuan, +11.8% year-on-year, net profit of 0.32 billion yuan, a year-on-year profit of +271.9%, and a gross profit margin of 14.2%, and +3.7 pcts year-on-year. Looking at a single quarter, 24Q2 revenue was 5.8 billion yuan, +10.1% YoY, +9.8% month-on-month, net profit 0.22 billion yuan, year-on-year transfer profit +216.6%, +127.6% month-on-month, gross profit margin 16.0%, +4.7pcts YoY, and +3.9pcts month-on-month. The profit side increased significantly, mainly due to the recovery of consumer electronics, and the demand for computing power continued to grow. The company's capacity utilization rate increased, and revenue from middle and high-end products increased significantly.

AMD upgraded data center GPU revenue guidelines, and utilization rates continued to increase month-on-month. According to the latest IDC data, 2024Q2 global PC shipments reached 64.9 million units, an increase of 3% year on year. The PC market has achieved two consecutive quarters of year-on-year growth, and AI PCs are leading the continuous recovery of the market. According to Gartner's forecast, the global AI chip market will reach 71.3 billion US dollars in '24, +33% YoY, and +29% YoY. Cloud customers and enterprise customers have strong demand for Instinct GPUs and EPYC processors, and AMD's data center business grew beyond expectations. Among them, MI300 GPUs exceeded expectations by 1 billion US dollars in a single quarter, AMD's data center GPU revenue this year was 4.5 billion US dollars (previous value was 4 billion US dollars), demand for high-end processors and AI chip packaging continues to grow, and the company's 24H1 high-performance packaging business continues to grow, and actively expand with leading customers such as AMD Produced at the Penang factory. The company is AMD's largest sealed testing supplier, accounting for more than 80% of its total orders. The 24Q3 operating rate of Suzhou/Hefei/Penang is expected to continue to increase month-on-month.

Expand the advanced packaging layout, and production capacity construction is progressing steadily. The company continues to invest in high-end processors and other product fields, and is expected to meet more OS demand in the future; construction of major projects such as the new mechanical and electrical installation project at the new Suzhou plant, the construction of the new Bump production line in Penang, and the construction of an advanced packaging production line continues to advance steadily. The company's technology research and development level continues to improve. 24H1 is upgrading large-scale multi-chip Chiplet packaging technology and developing new processes such as corner fill and CPB; in terms of forward-looking technology layout, according to Business Korea, AMD plans to use glass substrates from 2025 to 2026. Currently, the company's FCBGA chip packaging technology based on glass core substrates and glass adapter boards has completed preliminary verification; in addition, the company's 16-layer chip stacked packaging products are shipped in large quantities, and the pass rate is at the leading level in the industry. The first domestic WB split cavity shielding technology and plasma dicing technology have entered mass production.

The revenue of **** stocks increased year-on-year for 7 consecutive months, and Anjiu, Sun and Moonlight guided the continuous recovery of the closed testing industry in Q3. Judging from the guidelines of major overseas manufacturers, according to the Anjiao 24Q2 Law Conference, the company said that the second half of the year will experience significant growth that is stronger than the season, and the automobile & industry will grow moderately starting in Q3; according to the Sun Moon Light 24Q2 Law Conference, the Q2 packaging and testing capacity utilization rate is slightly above 60%. The company expects Q3 capacity utilization to exceed 65% and Q4 to reach 70%. Tongfu Microelectronics said that the consumer market will continue to recover in the second half of the year, while demand for computing power will continue to grow. The industrial and vehicle regulation markets have gradually bottomed out, and there is still considerable room for growth. Judging from the revenue of **** stock sealing companies, it has achieved a year-on-year increase for 7 consecutive months in 24 years. We believe that the closed testing industry will maintain its recovery trend in Q3, and the increase in operating rate will drive further restoration of profit margins.

Profit forecast and investment advice: We expect the company to achieve revenue of 26.39/29.96/33.6 billion yuan in 2024/2025/2026, yoy +18.49%/13.53%/12.15%, achieve net profit to mother of 1.061/1.307/1.595 billion yuan, yoy +526.17%/23.22%/22.04%, and maintain the “Highly Recommended” rating.

Risk warning: Exchange rate fluctuations cause exchange losses, downstream demand falls short of expectations, and the risk of prices falling due to increased competition.