Incidents:

On August 27, Pran Co., Ltd. released its 2024 semi-annual report: 2024H1 achieved operating income of 0.896 billion yuan, up 91.22% year on year, of which 2024Q2 revenue was 0.491 billion yuan, up 85.6% year on year and 21.28% month on month. In terms of gross margin, 2024H1's gross profit margin was 33.74%, up 13.17 pcts year on year; of these, 2024Q2 gross profit margin was 35.35%, up 16.00 pcts year on year, and 3.55 pct month on month. In terms of net profit, 2024H1 net profit attributable to mother was 0.136 billion yuan, which turned a loss into a profit year on year; of these, 2024Q2 net profit was 0.086 billion yuan, a year-on-year increase of 72.38%; 2024H1 deducted non-return net profit of 0.151 billion yuan, which turned a year-on-year loss into a profit. Of these, 2024Q2 net profit without return to mother was 0.09 billion yuan, a year-on-year increase of 45.64%.

Investment highlights:

Financial analysis: The downstream consumer electronics market is picking up, and demand is compounded by product volume to drive performance growth. 2024 H1's revenue grew significantly year-on-year, mainly due to the recovery in IOT, wearable devices, mobile phones, smart homes, etc., and market demand for the company's main products increased year-on-year. At the same time, the company continues to stabilize the complete layout and performance leadership of the non-volatile memory product line, vigorously expanding its market share on the basis of existing products, and actively promoting the smooth mass production of new products. The company's product shipments have increased significantly over the same period last year. In terms of gross profit, due to market recovery, the year-on-year increase in operating costs was less than the year-on-year increase in revenue, and gross profit increased as a result. In terms of R&D, the company attached importance to product development and optimization of the downstream application structure, and maintained a high level of R&D investment. 2024H1's R&D expenses increased 18.68% year over year.

The memory chip business has grown dramatically, and automotive products are progressing smoothly. 2024H1's storage-series chip revenue was 0.724 billion yuan, up 70.81% year on year; gross profit margin was 34.81%, up 15.32 pct year on year; shipment volume was 3.784 billion units, up 71.44% year on year. In terms of NOR Flash, a full range of 4Mbit to 128Mbit capacity products under the company's 40nm SONOS process have been mass-produced and are at the leading technical level in the industry. ETOX NOR Flash products have achieved mass production and shipment of 512 Mbit capacity products. In the future, they will continue to complete products through process research and design innovation, achieve rapid introduction into the high-capacity market, and continue to increase the company's market share in the NOR Flash field. In terms of vehicle specification product development, the company's small and medium capacity SONOS NOR Flash in-vehicle products have successively completed AEC-Q100 certification, which are mainly used in front-mounted vehicle navigation, central control and entertainment for some brand models. At the same time, the company's full-capacity ETOX NOR Flash series products have passed the AEC- Q100 vehicle certification, opening up a wider market space for future growth. In terms of EEPROM, the company continues to promote applications in industrial control and vehicle applications. The proportion of industrial control applications has increased significantly, which has played a role in stabilizing the company's gross margin. At the same time, the company's automotive products have completed a comprehensive assessment of the AEC-Q100 standard, and achieved batch delivery to domestic and foreign customers in applications such as body cameras, in-vehicle central control, and entertainment systems, and the revenue share of automotive electronics products has increased.

“Storage+” series chips are growing rapidly, and core products are rapidly being released. 2024H1's “Storage+” series chip revenue was 0.172 billion yuan, up 284.61% year on year; gross profit margin was 29.24%, down 1.53 pct year on year; shipment volume was 0.373 billion units, up 275.36% year on year. In terms of MCU products, 2024H1 continues to expand the MCU product line and gradually introduce it into many downstream application terminals such as consumer electronics and industrial control. In terms of new products, the company's motor-specific M0+ MCU products developed based on the ARM core cover single-phase to three-phase, low to high pressure, medium- and low-end to high-end fan and water pump applications. Currently, 1 series of this product has been mass-produced, mainly used in downstream applications such as power tools, fans, and water pumps. In terms of analog VCM driver chips, 2024H1 has mass-produced multiple PE series voice coil motor driver chips (2 in 1) with built-in non-volatile memory, and 1.2V PD series voice coil motor driver chip products have also been mass-produced and shipped. The company's mid-mounted voice coil motor driver chips have also been shipped in large quantities. Relying on the customer resource advantages of EEPROM products, they have achieved smooth downstream delivery. In addition, next-generation VOIS (optical anti-shake voice coil motor drive) chips developed by the company have been mass-produced, and OIS chips have also been delivered in batches to mobile phones and security clients.

Profit forecasts and investment ratings: In the field of non-volatile memory chips, the company's market share has increased rapidly. At the same time, around the “storage +” development strategy, we are actively promoting the launch of new products to achieve expansion into higher value-added fields and more diversified markets. Against the backdrop of a recovery in market demand, the company's product shipments increased sharply year on year, so we raised our profit forecast. The company's revenue for 2024-2026 is 1.842/2.225/2.638 billion yuan, respectively; net profit to mother is 0.276/0.367/0.434 billion yuan, EPS is 2.61/3.47/4.11 billion yuan respectively, corresponding PE is 24/18/15 times, maintaining a “buy” rating.

Risk warning: 1) Downstream consumer electronics demand recovery falls short of expectations; 2) market competition intensifies; 3) automotive product introduction progress falls short of expectations; 4) new product development progress falls short of expectations; 5) domestic substitution falls short of expectations.