Incident: The company released its 2024 semi-annual report. 24H1 achieved revenue of 0.299 billion yuan, +23.47% year over year; realized net profit to mother of -0.028 billion yuan, a year-on-year reduction in losses; deducted non-net profit of -0.085 billion yuan, increasing year-on-year losses. Among them, Q2 achieved revenue of 0.158 billion yuan in a single quarter, +3.73% year over month; realized net profit of 2.8701 million yuan, turning loss into profit year on year and turning loss into profit from month to month; and realized deduction of non-net profit of -0.051 billion yuan, which increased year-on-year losses and increased month-on-month losses.

Chizhou Yunshan announced that it has effectively improved net profit, and MLCC expenses have dragged down non-performance: 24H1's revenue increased dramatically, mainly due to the recovery in demand in the domestic smartphone terminal market and the increase in orders from downstream customers.

24H1's net profit loss decreased sharply year on year, mainly due to the company's contraction of investment in the semiconductor lead frame business and relinquishing priority capital increase rights and actual control over the holding company Chizhou Yunshan, which effectively improved the health of the company's financial structure. 24H1's non-recurring profit and loss increased by 50.1784 million yuan, leading to a significant increase in net profit indicators. Losses after deducting non-net profit increased year-on-year, mainly due to the Chizhou Yunzuka MLCC investment project entering the small-batch mass production stage, a sharp increase in depreciation and related expenses due to the transformation of the project under construction, as well as an increase in operating costs such as labor and materials. 24H1's gross margin was 18.88%, +1.38pct year on year; net profit margin -11.15%, +11.01pct year on year. 24Q2 gross margin was 15.84%, -5.53pct yoy, -6.42pct month-on-month; net margin was -0.04%, +13.99pct yoy, +23.51 pct month-on-month. In terms of expenses, 24H1's sales, management, R&D and financial expenses were 4.53%/11.80%/19.18%/6.27%, respectively, -0.51/-4.25/+2.92/+0.91pct, respectively. Among them, the MLCC business is in the R&D and trial production stages, leading to a significant year-on-year increase in R&D investment.

We are optimistic that demand will heat up during the peak season, and the CMI penetration rate is expected to continue to increase: according to IDC data, the Chinese smartphone market shipped about 71.58 million units in 24Q2, up 8.9% year on year, continuing the growth trend. Benefiting from the continued growth in domestic smartphone brand shipments and the accelerated penetration of OIS optical anti-shake and periscope cameras into low-end phones, the company will continue to focus on promoting the usage of CMI's third-generation and fourth-generation products in high-end flagship models, especially the market application of periscope and variable apertures, to further enhance market competitiveness and profitability. At the same time, we are actively expanding the market share of CMI's first and second generation mobile phones, based on cost advantages. Entering the peak consumer electronics season in the second half of the year, many domestic mobile phone brands will launch new phones one after another. We are optimistic that the company will seize the opportunities of the peak season, and the capacity utilization rate is expected to run at a high level. In terms of production capacity, the company will plan to expand production based on mass production orders in the second half of the year, mainly for CCMI related production line expansion to meet customer needs. As CMI's third-generation and fourth-generation products are released and yield increases in the future, the company's gross margin will gradually improve and enter the repair channel.

It is expected that MLCC will gradually reduce losses, and DPC will benefit from the growth of the laser industry and the localization process: Electronic ceramics is the company's medium- to long-term strategic business, mainly including MLCC and DPC. 1) MLCC: 24 is the first year of sales of the company's MLCC products. The products include a series of products in sizes such as 0201 and 0402, covering various market applications in consumer electronics, automotive electronics, communications and other industries. The company's MLCC team actively promotes IATF16949 automotive quality management system certification, and plans to obtain relevant certification qualifications by the end of 24, laying a good foundation for the expansion of the company's MLCC business. We believe that in 25-26, as the company's MLCC product line increases and production and processes continue to mature and stabilize, it is expected that while sales will increase, losses will gradually be reduced by covering some fixed costs. 2) DPC: The company independently developed prefabricated gold-tin ceramic heat sink products, including pre-formed gold-tin aluminum nitride, silicon carbide and other products, which are widely used in high-power lasers, laser cutting, laser welding and other fields. We believe that laser technology is gradually replacing traditional processes, and process upgrades bring about changes in market demand. The laser industry chain is gradually shifting domestically, and end customers will also be more inclined to choose domestic suppliers based on industrial chain safety considerations. I am optimistic that the company's DPC ceramic substrate business will benefit from the growth and localization process of the laser industry. In the future, along with the upgrading of the high-end manufacturing industry, the scale of the company's DPC business will continue to grow, creating new profit growth points for the company.

Maintaining a “buy” rating: As the peak consumer electronics season approaches, we are optimistic that the CMI business will benefit from increased sales of domestic mobile phones such as Huawei and OV Mi, and shipments are expected to continue to grow at a high rate. Periscope lenses are penetrating faster, and we are optimistic that the market demand for CMI products in periscope motors and OIS motors will further increase.

In the short term, the company's MLCC business may still drag down the company's profits due to high investment. We are optimistic that in the future, as MLCC revenue grows, losses are expected to gradually narrow, and the company's fundamentals are expected to improve quarterly.

DPC benefits from the growth of the laser industry and the localization process, and is expected to increase the company's performance. The company's net profit for 2024-2026 is estimated to be -0.06 billion yuan, 0.048 billion yuan, 0.083 billion yuan, EPS is -0.50, 0.40, and 0.69 yuan/share, respectively, and PE is 41X and 24X for 25-26, respectively.

Risk warning: Downstream demand falls short of expectations, market competition increases risk, raw material price fluctuation risk, and downstream customer concentration risk.