Event: The company released its 2024 semi-annual report. During the reporting period, the company achieved operating income of 1.665 billion yuan, an increase of 79.49% year on year; net profit attributable to shareholders of listed companies was 0.593 billion yuan, an increase of 624.63% year on year.

Comment:

Benefiting from the restorative growth of the server industry, the company's 24Q2 business performance achieved a significant year-on-year increase.

According to the company's semi-annual report, the company achieved revenue of 1.665 billion yuan in the first half of 2024, up 79.49% year on year, and achieved net profit of 0.593 billion yuan, up 624.63% year on year. The corresponding 24Q2 revenue was 0.928 billion yuan, up 82.59% year on year, up 25.83% month on month. Net profit corresponding to 24Q2 was 0.37 billion yuan, up 495.07% year on year and 65.50% month on month. In terms of profitability, the company's gross sales margin for the first half of 2024 was 57.78%, up 1.45 percentage points from the same period last year, and the net sales margin for the first half of 2024 was 35.63%, up 26.79 percentage points from the same period last year; on a quarterly basis, the company's 24Q2 gross sales margin was 57.83%, -1.00pct year on year, +0.13pct month on month, and the company's 24Q2 net sales margin was 39.86%, +27.61 pct year on year. During the reporting period, the global integrated circuit industry picked up, and benefiting from strong demand for AI, the global server industry maintained a high level of prosperity. After experiencing overall industry inventory removal in 2023, restorative growth began in 2024. According to the “Global Server Market Report for the First Quarter of 2024” released by Gartner in July 2024, global server market sales continued to grow in the first quarter of 2024, with sales of 40.75 billion US dollars, up 59.9% year on year; shipment volume was 2.82 million units, up 5.9% year on year. The company's products, memory interface and module supporting chips, PCIereTimer chips, MXC chips, Jinjue CPUs, and hybrid secure memory modules are mainly used in servers. As a result, benefiting from the recovery in the server industry, the first half of 2024 and the second quarter of 2024 achieved significant year-on-year growth in boom, and profitability improved.

The leading position in the memory interface chip industry is stable, and PCIe Retimer chips have created a new growth point. The company is a leading enterprise in the global memory interface chip industry. It is at the leading level in terms of technical strength and market size. It has taken the lead in formulating various DDR5 memory interface chip standards, including DDR5 RCD chips and MDB chips, and actively participated in the formulation of standards for DDR5CKD chips and DDR5 memory modules. In October 2021, the company mass-produced DDR5 first-generation memory module chips and memory module supporting chips; in May 2022, the company took the lead in trial production of DDR5 second-generation RCD chips; in October 2023, the company took the lead in trial production of DDR5 third-generation RCD chips in the industry; in January 2024, the company launched DDR5 fourth-generation RCD chips that support a rate of 7,200 MT/s; currently, the company is developing DDR5 fifth-generation RCD chips. In terms of market share, Lanqi has gradually established an industry leading edge in the DDR4 generation. It is one of the three major global manufacturers that can provide DDR4 memory interface chips, and occupies an important share of the global market. In the DDR5 generation, the company continued to lead, and the market share of memory interface chips remained stable. The company can provide complete memory interfaces and module supporting chip solutions for DDR5 series memory modules, and is currently one of the two companies in the world that can provide a full range of solutions; in the PCIe 4.0 era, Lanqi is one of the three companies mass-producing PCIe 4.0 Retimer chips in the PCIe 5.0 era; in the PCIe 5.0 era, the company mass-produced PCIe 5.0/CXL 2.0 Retimer chips in January 2023, making it the second manufacturer in the world to mass-produce this product. The company's self-developed PCIe SerDes IP has been successfully used in PCIe 5.0/CXL 2.0Retimer. The self-developed IP brings good integration and brings certain advantages in terms of product latency and channel adaptability. Based on these competitive advantages, the company's PCIe Retimer chips are being recognized by more and more customers and downstream users, and large-scale shipments began in the first quarter of 2024, and shipments doubled in the second quarter. The market share increased markedly, showing a good growth trend.

R&D investment remains at a high level and actively adapts to the trend of AI development. The company currently has two major product lines: the interconnect chip product line and the Jinjue server platform product line. Among them, interconnect chip products mainly include memory interface chips (including MRCD/MDB chips), memory module supporting chips, CKD chips, PCIe Retimer chips, MXC chips, etc., while Jinju server platform products include Jinju CPUs and hybrid secure memory modules (HSDIMM). The company attaches importance to R&D investment. R&D expenses in the first half of 2024 were 0.367 billion yuan, an increase of 21.16% over the same period last year, and R&D expenses accounted for 22.03% of revenue. According to the company's semi-annual report, as of the first half of 2024, the company has authorized a total of 11 invention patents. In the AI era, demand for “computing power” and “memory” of computers is growing rapidly, and systems are placing higher demands on “capacity.” As an enterprise that provides high-performance “capacity” for computing and intelligent computing, the company's various high-speed interconnect chip products can effectively improve the “capacity” of the system and will play an important role in the future era of artificial intelligence.

Investment advice: The company's earnings per share for 2024-2025 are expected to be 1.19 yuan and 1.96 yuan respectively, corresponding to PE of 43 times and 26 times, respectively, maintaining a “buy” rating.

Risk warning: Risk of downstream demand recovery falling short of expectations, risk of new product introduction falling short of expectations.