1H24 results are in line with our expectations

The company announced 1H24 results. 1H24 achieved revenue of 11.08 billion yuan, +11.83% year over year; gross profit margin of 14.16%, +3.74ppt; net profit to mother 0.323 billion yuan, turning a year-on-year loss into a profit; net profit without return to mother of 0.316 billion yuan, turning a year-on-year loss into a profit. 2Q24 achieved revenue of 5.798 billion yuan, +10.1% YoY, +10% month-on-month; gross profit margin of 16%, +4.73ppt; net profit to mother of 0.224 billion yuan, which turned a year-on-year loss into profit, +127.6% month-on-month; net profit after deducting non-attributable net profit of 0.222 billion yuan, which turned a year-on-year loss into profit, +134.82% month-on-month. It met our expectations.

Development trends

Review of the first half of 2024: A recovery in the consumer cycle is compounded by strong demand for AI. In the first half of 2024, the traditional mobile phone and consumer markets ushered in a recovery centered on inventory replenishment. In addition, demand for memory, display drivers, and FC recovered relatively well; however, the industrial control, power, and gaming markets weakened in the first half of the year. The company's major customer AMD data center business is in strong demand, and the company continues to cooperate to expand production at its Penang plant. In the first half of 2024, the company upgraded its large-size multi-chip Chiplet packaging technology and developed new processes such as Cornerfill and CPB. The company also launched FCBGA chip packaging technology based on glass core substrates and glass adapter boards to develop the demand for high-performance chips in the fields of optoelectronic communications, consumer electronics, artificial intelligence, etc.

Outlook for the second half of 2024: Structural changes continue, maintaining high expectations before and after low revenue, but price increases may be delayed. Looking ahead to the second half of the year, we maintain expectations of a weak recovery in the Android chain and consumer market, and maintain optimistic expectations for the computing power market. At the same time, we believe that the industrial and vehicle regulation markets have gradually bottomed out, and it is unlikely that prices will continue to fall. We also believe that “China for China (local manufacturing)” due to cuts in the global supply chain will bring more potential transfer orders to the company. Based on this, we believe that the company is more likely to maintain a healthy capacity utilization rate in 2024 and the first half of 2025, but the possibility of price increases is lower.

Profit forecasting and valuation

We believe it is unlikely that the sealed price will rise sharply in the second half of the year and the first half of 2025. Net profit for 2024 and 2025 will be lowered by 15% and 9% to 0.927 billion yuan and 1,171 billion yuan. The current stock price corresponds to 2.0 times the 2024 net market ratio and 1.9 times the 2025 net market ratio. Maintaining an outperforming industry rating, we are still optimistic about the company's position in the field of artificial intelligence chip packaging and testing. The target price is 23.27 yuan, which corresponds to 2.4 times the 2024 net market ratio and 2.3 times the 2025 net market ratio. There is 21% room for improvement compared to the current stock price.

risks

Continued weakness in consumer electronics demand led to a slowdown in inventory replenishment; the growth rate of AI server demand slowed; and R&D progress fell short of expectations.