Matters:

The company released the 2024 semi-annual results report:

1) 24H1 achieved revenue of 0.896 billion yuan (yoy +91.22%), net profit of 0.136 billion (yoy +273.78%), net profit of 0.151 billion yuan (yoy +254.58%), gross profit margin of 33.74% (yoy+13.17pct) 2) 24Q2 achieved revenue of 0.491 billion yuan (yoy +85.60%, qoq +21.28%), net profit to mother 0.086 billion yuan (yoy +271.75%, qoq +72.38%), net profit after deduction of 0.09 billion yuan (yoy +273.98%, qoq +45.64%), gross margin of 35.35% (yoy+16pct, qoq +3.55pct).

Commentary:

24Q2 revenue hit a record high in a single quarter, and profitability continued to improve. 24H1 achieved operating income of 0.896 billion yuan, an increase of 91.22% over the previous year, achieving net profit before deducting 0.136 billion yuan and net profit after deducting 0.151 billion yuan, a significant increase over the same period last year. Among them, 24Q2 achieved revenue of 0.491 billion, an increase of 21.28% over the previous quarter, setting a new high revenue value in a single quarter since the establishment of the company. Profitability continued to increase, 24Q2 gross profit margin 35.35% (qoq +3.55pct), net profit margin 17.52% (qoq+5.19pct). Benefiting from the recovery in consumer electronics such as IOT, wearable devices, mobile phones, smart homes, etc., functional upgrades in downstream terminal applications, and scenario applications of new terminal devices, etc., the market demand for the company's main products has increased compared to the same period last year. The company continues to play steadily in the complete layout and performance leadership of the non-volatile memory product line, vigorously expanding its product market share on the basis of existing products, and actively promoting the smooth mass production and implementation of new products. The company's product shipments achieved a significant year-on-year increase, all exceeding the mid-term forecast guidelines.

The cornerstone effect of storage products is remarkable, and the product matrix continues to expand. 24H1 achieved memory-series chip revenue of 0.724 billion yuan, up 70.81% year on year, gross profit margin of 34.81%, up 15.32 percentage points year on year, and shipped 3.748 billion units, up 71.44% year on year, breaking a record high. In terms of the NOR Flash product line, in the first half of 2024, the company continued to maintain growth resilience, expand customer share based on the original SONOS NOR Flash's full advantages in the small and medium capacity market, and continue to reach new highs in shipments. At the same time, the company's ETOXNOR Flash series products have been shipped at full capacity of 4 Mbit to 1 Gbit. The two processes have closely collaborated to create a complete NOR Flash product matrix to provide customers with more complete product choices. Among them, 256 Mbit to 1 Gbit high-capacity NOR Flash products have gradually completed customer sample delivery, verification, and shipping processes. Based on the company's strong market expansion capabilities and product sales capabilities, future high-capacity products will drive the company's growth rate and further consolidate the company's market position in the memory field. In terms of EEPROM products: 1) Vehicle specification series products have obtained AEC-Q100 Grade 1 high reliability certification, actively maintaining the continuous expansion of domestic and foreign customers; 2) The company has launched products with an erasure life of 10 million times and 100 years of data storage based on processes of 95nm and below, which have been shipped in large quantities in industrial three meters and other high-reliability products; 3) Industry-leading next-generation 1.2V products have been mass-produced to achieve breakthroughs for many new customers.

The “Storage+” product engine has sufficient momentum, and the second growth curve is developing rapidly. 24H1 achieved revenue of 0.172 billion yuan of “Storage+” series chips, up 284.61% year on year, and shipped 0.373 billion units, up 275.36% year on year, continuing to reach record highs. 24H1 has achieved breakthrough progress in MCU product shipments. The total shipment volume exceeds that of last year, and has accumulated a solid customer base and market brand strength. By the end of June, the company had launched 17 series of M0+ and M4 cores and more than 300 MCU products, covering the 55/40nm process. The products support 24 to 144 MHz main frequency, 24 to 384 KByteFlash storage capacity, USB/CAN/SDIO and various packaging forms of 20 to 100 IO, forming a more complete product matrix. The company's high-performance touch series MCUs have been mass-produced and shipped in small batches for use in smart homes, small household appliances and other fields. The Driver product line continues to expand the number of terminal brand customers, and at the same time, it has also formed an effective collaboration between the EEPROM product line and the MCU product line. Based on built-in products that have already been mass-produced, the company's individual central products have also been mass-produced and delivered to branded mobile phone customers.

The VIOS and OIS series product line layout has been gradually improved to support both traditional and emerging solutions.

Investment advice: The semiconductor storage market is recovering. The company has significantly benefited from the growth in memory and MCU demand, while fully grasping domestic opportunities. According to the company's 24H1 financial report, we revised our profit forecast. We expect the company's operating income for 2024-2026 to be 1.811/2.299/2.714 billion yuan (original value was 1.651/2.103/2.612 billion yuan), and net profit to mother was 0.258/0.333/0.415 billion yuan (original value was 0.182/0.272/0.362 billion yuan), corresponding EPS is 2.44/3.16/3.93 yuan. Referring to comparable company valuations, the company was given a 25-year, 30-times PE valuation, corresponding to a target price of 94.8 yuan/share, maintaining a “strong” rating.

Risk warning: downstream demand falls short of expectations; new product development/market development falls short of expectations; process authorization expires