Key points of investment

The RF module business grew rapidly, and profitability declined slightly. In 2024, H1's total revenue was 2.3 billion yuan (+37% year over year) and net profit to mother 0.35 billion yuan (-3% year over year). Total revenue for 2Q24 was 1.1 billion yuan (+15% YoY) and net profit to mother 0.16 billion yuan (-37% YoY). Benefiting from the overall recovery of the Android phone industry chain market, the month-on-month decline in Q2 revenue in 2024 was mainly due to factors such as factory depreciation and a sharp increase in R&D expenses (94% year-on-year increase in R&D investment), and the Android phone industry gradually began to remove inventory this year. At the same time, the profit decline was mainly affected by factors such as factory depreciation and a sharp increase in R&D expenses (R&D investment increased 94% year on year).

A leading company in the RF industry, L-pamid products have been verified by customers. The company is one of the enterprises with comprehensive business, strong comprehensive capabilities, and the most advanced and complete industrial chain layout in the field of RF front-end segments in the domestic integrated circuit industry. At the same time, the company took the lead in adopting the Fab-Lite business model. By building its own high-end filter production line, the company broke through the market monopoly of leading international companies, and the solution matched the leading international level. The company continuously optimizes and iterates MAXSAW's L-PAMID products produced in-house on an integrated 6-inch filter wafer production line, which has been verified by some brand customers. As the company continues to enrich product models and introduce customer orders, it is expected that the company will use this high-end product as a starting point to open up huge room for growth.

The product matrix is gradually being enriched, strengthening core technical barriers. At present, the company's 6-inch filter wafer production line basically covers all types of low, medium and high-end product forms, fully meeting the diverse needs of customers. Integrated self-produced filter products such as DiFeM, L-diFem, GPS modules, etc. have been successfully introduced into the customer supply chains of many brands and continued to be deployed. The 12-inch IPD platform has officially entered large-scale mass production, and the proportion of L-pamif, LFEM and other related module products using self-produced IPD filters has reached a high level. By continuously improving the product layout, the company's product application fields have expanded from smartphones to a wider range of market fields such as communication base stations, automotive electronics, and Bluetooth headsets, which helps to further enhance the company's brand influence and market share.

Profit forecast and investment rating: The company is the first domestic company to achieve autonomy and control of the RF industry chain. Due to the company's continuous R&D investment and production line depreciation, we lowered the company's 2024-2025 net profit from 1.4/1.7 billion yuan to 0.8/1 billion yuan. The net profit to mother is expected to be 1.3 billion yuan in 2026. As the overall Android industry chain recovers and AI phones drive the industry's switching cycle, profitability will increase significantly and maintain the “buy” rating.

Risk warning: R&D progress falls short of expectations, and market demand falls short of expectations.