Incidents:

On August 28, Wingtech released its 2024 semi-annual report: 2024H1 achieved operating revenue of 33.59 billion yuan, up 15.01% year on year, of which 2024Q2 revenue was 17.342 billion yuan, up 17.35% year on year and 6.74% month on month. In terms of gross margin, 2024H1's gross profit margin was 9.47%, down 8.14 pcts year on year; of these, 2024Q2 gross profit margin was 9.72%, down 7.58 pct year on year, up 0.52 pct month on month. In terms of net profit, 2024H1 net profit attributable to mother was 0.14 billion yuan, a year-on-year decrease of 88.78%; of these, 2024Q2 net profit was 0.003 billion yuan, with a year-on-month average loss; 2024H1 deducted non-return net profit of 0.128 billion yuan, which turned into a year-on-year loss. Of these, 2024Q2 deducted non-return net profit of -0.042 billion yuan, a year-on-year loss of 0.045 billion yuan.

Investment highlights:

Semiconductor business: Demand showed signs of recovery, with 2024Q2's gross margin exceeding 38% in a single quarter. In the first half of 2024, the company's semiconductor business achieved revenue of 7.04 billion yuan, a year-on-year decrease of 7.9%; of these, 2024Q2 revenue was 3.62 billion yuan, an increase of 5.85% over the previous year. In terms of gross margin, 2024H1's gross profit margin was 34.95%, of which 2024Q2 gross margin reached 38.7%, an increase of 7.7 pcts over the previous month. In terms of net profit, 2024H1's net profit was 1.08 billion yuan, down 22.4% year on year; of these, 2024Q2 net profit was 0.56 billion yuan, and 2024Q1 net profit of 0.52 billion yuan included investment income of 0.17 billion yuan from the sale of NWF shares. Excluding one-time investment income, 2024Q2 net profit increased 60% month-on-month. Facing the inventory adjustment cycle for automotive power semiconductors in the first half of 2024, the company's semiconductor business performed well in the Asia-Pacific region to offset weak demand in the European and American markets. At the same time, it also accelerated market development among leading domestic new energy companies. Product supply and bicycle value increased steadily. In terms of share, 2024H1's automotive business accounts for 63%. The industrial and consumer electronics markets are gradually recovering, and application fields such as AI data centers and servers are growing rapidly. In terms of share, 2024H1's industrial and electricity, mobile and wearable devices, computer equipment, and consumer sectors accounted for 21.08%, 7.35%, 5.21%, and 3.36%, respectively.

Semiconductor business: Continued increase in R&D, and the development of new products is progressing smoothly. The company's key product lines include transistors (including ESD/TVS protection devices, etc.), MOSFET power tubes, analog and logic ICs. In the first half of 2024, the three categories of products accounted for 44.31% of revenue (of which 10.97%), 37.83%, and 15.55%, respectively. In the first half of 2024, the semiconductor business invested 0.874 billion yuan in R&D. The company continued to increase R&D investment. On the basis of iteratively upgrading existing products to launch new products, the company achieved continuous development of new products such as high-power discrete devices (IGBT, SiC, and GaN) and modules, analog IC combinations, power management ICs, and signal conditioning ICs to meet the growing market demand for high-performance, high-power products, and continue to provide a driving force for future business growth with high-ASP products.

Product integration business: Cost reduction and efficiency combined with potential price increases, profitability is expected to pick up.

In the first half of 2024, the company's product integration business achieved revenue of 26.12 billion yuan, a year-on-year increase of 26.68%, gross margin of 2.49%, and a net loss of 0.85 billion yuan. The reason for the decline in profits was due to factors such as lower prices for new projects, higher prices for some raw materials, and higher labor costs in factories. Entering 2024Q2, product integration business revenue grew rapidly month-on-month and year-on-year due to improved demand from major overseas customers. However, due to increased market demand for some low-margin projects, the overall gross margin of the product integration business declined in a phased manner. The company actively communicates and negotiates with customers, and at the same time actively takes various cost reduction and efficiency measures. It is expected that 2024Q3 related results will be shown. In terms of key business, in the field of mobile phones and tablets, the company successfully launched new projects with leading Android customers at home and abroad. While implementing cost reduction and efficiency, it is actively communicating and negotiating with customers on product prices. It will begin implementing major price increase measures in 2024Q3. As subsequent related projects achieve sharp increases in volume and price, profitability is expected to further improve. In the notebook field, as an important supplier of notebook computers for North American customers, AI PCs produced by the company in cooperation with specific customers were sold globally in early 2024. Market demand feedback was positive, and volume was rapidly increased in the second quarter. At the same time, next-generation projects are being promoted in cooperation. At the same time, with the implementation of cost reduction and efficiency and the specific implementation of product price optimization adjustments, the profitability of laptop projects will be further improved.

Profit forecast and investment rating: The company is a leading global power semiconductor and ODM manufacturer, and is expected to maintain steady growth in the future, driven by emerging applications such as electric vehicles and AI. In the first half of 2024, the company's product integration business was affected by factors such as low industry demand and supply chain price increases, and performance fluctuated. At the same time, starting in the second half of 2024, the company actively communicated and negotiated with customers and actively adopted various cost reduction and efficiency measures. It is expected to have a positive impact on the second half of the year and future results, so we have adjusted our profit forecast. It is estimated that in 2024-2026, the company's revenue will be 67.909/75.445/88.296 billion yuan, the net profit to mother will be 1.412/2.626/3.283 billion yuan, the corresponding EPS will be 1.14/2.11/2.64 yuan, and the corresponding PE will be 21X/11X/9X, maintaining the “buy” rating.

Risk warning: 1) Risks brought about by increased competition in the power semiconductor market; 2) the recovery in downstream consumer electronics demand falls short of expectations; 3) demand in the automotive and industrial markets falls short of expectations; 4) the recovery in overseas markets falls short of expectations; 5) the implementation progress of the company's product integration business projects falls short of expectations.