2Q24: Revenue continued to increase month-on-month, but losses increased in a single quarter

2Q24 achieved revenue of 0.175 billion yuan (yoy: -19.06%, qoq: +23.58%) and net loss to mother of 0.066 billion yuan (1Q24: -0.056 billion yuan, 2Q23: -0.029 billion yuan). 2Q24 The communication/industrial control industry is still in the inventory cycle. Demand for some consumer products recovered slightly, and the company began to launch new products, which led to a 23.58% increase in revenue over the previous month. The company's large client product prices were stable, and the proportion of mature products with relatively low gross margin increased, resulting in a year-on-month decrease of 6.88/9.63 pct to 28.90%, respectively.

Due to pressure on gross margin and high R&D investment, the company continued to lose profits in a single quarter. At the same time, the company accrued asset impairment losses of 26.76 million yuan in 2Q. Considering that it will take time for communications/industrial control demand to recover, the 24/25/26 revenue forecast was lowered to 0.759/1.038/1.434 billion yuan (previous value: 0.979/1.356/1.897 billion yuan), giving 12x 24PS (comparable company 11x 24PS), and a target price of 22.72 yuan to “buy”.

2Q24 review: Industry demand is slowly recovering, and inventory management is showing initial results. The company's chip product shipments increased in the first half of the year compared to the same period last year. End customer inventory removal in some industries is nearing the end and demand has begun to recover. 1Q/2Q revenue has improved month-on-month. In addition, users of various new product models such as SALELF, SALPHOENIX, and SALDRAGON have begun to be introduced, successfully capturing new demand in various fields other than communications/industrial control, such as automotive electronics, data centers, consumer electronics, smart grids, medical equipment, and new energy sources, opening up new growth points for future revenue.

The company continues to maintain high R&D investment. R&D expenses accounted for 60.56% of revenue in the first half of the year. Currently, it has completed the development of more than 160 IP and reference designs covering 12 major application categories. In terms of inventory, the company continues to deepen inventory management. As of the end of 2Q24, inventory was 0.677 billion yuan, down 0.092 billion yuan from the end of the previous quarter, and the number of inventory turnover days dropped to 581 days (1Q 24:754 days). We expect a further decline in the next quarter.

24-year outlook: FPGA mass production specifications and models are continuously improved to capture more downstream fields. We believe that as downstream customer inventories are digested to a normal level, the company's revenue is expected to improve quarterly in the second half of the year. Specifically: 1) In terms of hardware, the introduction of new Phoenix series products is expected to accelerate, PHOENIX1 high capacity and medium logic capacity products are expected to be further expanded, and PHOENIX2 high-capacity products are expected to be mass-produced and shipped to expand coverage of downstream customers; the new generation FPSoC product SALDRAGON series It supports low power consumption and high performance applications, and is expected to begin rolling out in '24. 2) In terms of software, promote performance improvements in the supporting dedicated EDA software supporting the company's full range of FPGA/FPSoC chips, speed up customer import efficiency, and enhance software stability and ease of use.

Investment advice: “buy” rating, target price 22.72 yuan

We expect revenue of 0.759/1.038/1.434 billion yuan for 24/25/26. Considering the company as a scarce domestic FPGA supplier, it will still take time for communication/industrial control demand to recover. We give 12x 24PS (comparable company 11x 24PS), a “buy” rating.

Risk warning: Market competition intensifies, production capacity release falls short of expectations, R&D progress falls short of expectations.