Incidents:

The company released its 2024 semi-annual report. Revenue for the first half of 2024 was 0.317 billion yuan, a year-on-year decrease of 21.48%; net profit to mother - 0.122 billion yuan; net profit to mother - 0.146 billion yuan. Among them, revenue for the first quarter was 0.142 billion yuan, and revenue for the second quarter was 0.175 billion yuan.

Q2 Revenue increased month-on-month, and chip shipments achieved year-on-year growth

According to the report, the main reason for the year-on-year decline in the company's revenue is due to factors such as the inventory removal cycle for some terminal industry customers not over, and the uneven recovery process of demand in various downstream markets such as industry, communications, and consumer electronics, but market demand is still recovering. At the same time, 1) Chip shipments have increased year-on-year, and end customers in some industries are nearing the end of inventory removal, and there are obvious signs of recovery in demand. 2) The company carried out inventory control and increased market development efforts. The pressure reduction effect was remarkable. Inventory fell from 0.763 billion yuan at the beginning of the reporting period to 0.607 billion yuan at the end of the reporting period, a decrease of 20.49%, and inventory turnover was gradually optimized. We believe that subsequent operations are expected to continue to improve, and the company's revenue is expected to gradually pick up as measures such as downstream inventory improvement, new product introduction, new market development, and inventory control take effect.

Continue to maintain high investment in R&D, and many new products are progressing smoothly

In the first half of the year, the company invested 0.192 billion yuan in R&D, the R&D cost ratio was 60.56%, the product layout was becoming more and more perfect, and several products were mass-produced or developed. Product side: Realize the development of several new PHOENIX and ELF series products; complete the development of domestic 28nm FPGA chips; complete the development of low-power FPSoC and high-performance FPSoC chips, and apply them in the fields of video images and industrial control; realize batch supply of automotive FPGA chips and launch applications, and develop new automotive FPGA chips; at the same time, increase the development of FPGA-specific EDA software and FPSoC-specific software. Market side: Various product models such as SALELF, SALPHOENIX, and SALDRAGON have been introduced, and progress has been made in the fields of industrial control, network communication, video images, automotive electronics, data centers, consumer electronics, and smart grids.

We believe that during the downward phase of the semiconductor cycle, the company continues to increase R&D investment to consolidate technical barriers and introduce new products in various fields, and is expected to continue to benefit from the trend of domestic FPGA replacement industry.

Investment advice:

We expect the company's revenue from 2024 to 2026 to be 0.736 billion yuan, 0.993 billion yuan, 1.192 billion yuan, and net profit to mother of -0.183 billion yuan, -0.103 billion yuan, and -0.02 billion yuan, respectively. Considering that the company is one of the leaders in domestic FPGAs, high R&D investment has affected profit release, and demand and inventory levels are expected to continue to improve. It is expected to benefit from the FPGA localization trend in the long term. It is expected to benefit from the FPGA localization trend of 13 times in 24 years, corresponding to a target price of 23.9 yuan, and maintain a “buy-A” investment rating.

Risk warning:

Industry demand falls short of expectations; new product development and introduction falls short of expectations; market competition intensifies; short-term profit pressure is high.