Incident: The company released its 2024 semi-annual report. In 2024, H1 achieved operating income of 0.637 billion yuan, a year-on-year decrease of 16.72%; realized net profit of 0.003 billion yuan, a year-on-year decrease of 95.98%; and realized deduction of non-net profit of -0.003 billion yuan, a year-on-year decrease of 105.21%. In 2024, Q2 achieved operating income of 0.39 billion yuan, a year-on-year decrease of 9.94% and a month-on-month increase of 58.34%; realized net profit of 0.004 billion yuan, a year-on-year decrease of 86.63%, which significantly reversed losses from month to month; realized deduction of non-net profit of 0.002 billion yuan, a year-on-year decrease of 93.55%, which significantly reversed losses from month to month.

24H1's performance was under year-on-year pressure, and 24Q2 net profit declined sharply from month to month: H1's performance declined year-on-year in 2024. The main reasons were: 1) the first quarter was mainly due to a slowdown in global economic growth, fluctuations in the downstream photovoltaic industry sentiment and a slowdown in inverter demand; 2) the holding subsidiary's core kinetic energy production capacity climbed, and capital expenditure supported continued investment. In terms of profitability, H1's gross margin in 2024 was 15.72%, -5.56pcts year on year; the company's net margin was -0.06%, -8.23pcts year on year. In terms of expenses, in 2024, the company's sales, management, R&D and financial expenses rates were 1.97%/5.42%/8.47%/1.39%, respectively, and the year-on-year changes were +0.68/+2.34/+1.86/+0.26pct, respectively. Among them, the ratio and amount of management expenses both showed year-on-year increases, mainly due to the expansion of the company's size, the increase in the number of management personnel, the increase in remuneration, and the increase in equity incentive expenses. Revenue grew rapidly in Q2 in '24, and the profit side reversed losses sharply month-on-month. The main reasons were:

1) Demand in the field of new energy power generation has recovered, and shipments from key PV customers have increased significantly; 2) The loading volume of new energy vehicles increased sharply year-on-year in the first half of the year; 3) In the field of industrial control, many new customers have been developed.

Continuing to increase investment in R&D and maintain leading technological advantages: In 2024, the company continued to increase R&D investment in core technology and is committed to technological product innovation and upgrading. Among them, 1000V M7U chips for photovoltaic applications have been developed and certified, and mass production; the corresponding FRD chips have also passed the HV-H3TRB reliability test through a new terminal design to meet the moisture resistance requirements of wind storage devices; the company is actively expanding the industrial control and new energy product line to meet the new needs of different fields. At the same time, the company continues to innovate around ultra-fine groove structure+field blocking technology, soft recovery diode chip technology, etc. The products cover the fields of new energy vehicles, new energy power generation, energy storage and industrial control, and continue to innovate on many key power chip technologies such as seventh-generation micro-groove IGBT technology, virtual cell technology, reverse conduction IGBT technology, SiC, and double/single-sided water cooling of molded PTMs.

At the same time, the company has established in-depth cooperative relationships with many domestic research institutes and overseas institutions to actively lay out next-generation compound semiconductor chip design and module packaging technology.

The vehicle regulation business is developing well, and many products have entered the mass production stage: According to Linkedin's forecast, the global NEV market size is about 65.57 billion US dollars in 2024, and the global NEV market is expected to grow to 117.43 billion US dollars in 2031. The CAGR of the global NEV market in 2024-2031 is about 8.5%. The company's vehicle regulation products have clear and objective market prospects. In 2023, the company's vehicle regulation business grew rapidly. Among them, the company was a direct supplier to BYD, and the company's vehicle specification products were indirectly supplied to end customers such as GAC Aian and Cyrus through the leading tier 1, and the total number of vehicles loaded exceeded 0.4 million units. In 2024 H1, the company successfully developed vehicle-grade 280A-820A/750V encapsulation modules with different transmission capabilities for different application scenarios on the main drive inverter side and power generation side of new energy vehicles. They passed AQG324 and other relevant vehicle certification, and entered the mass production stage; the company's 400-800A/750V double/single-sided heat dissipation molding modules used in new energy vehicles were also mass-produced. The volume of these products is expected to inject new momentum into the growth of the vehicle regulation business. In summary, the company has strong technical strength and market competitiveness in the field of automotive electronics, which can meet the high reliability and high performance requirements of automotive end customers.

Maintaining a “buy” rating: The company is mainly engaged in the design, R&D, production and sales of power semiconductor chips, single tubes and modules, mainly IGBT and FRED. The company's products are widely used in various fields such as industrial control, new energy power generation, and electric vehicles. In 2023, the company continued to increase investment in R&D, further ensuring the company's technological leadership; the company's vehicle regulation products were supplied in batches at customers of many well-known car companies, and the company's vehicle regulation business grew rapidly. Looking forward to the future, the company's performance is expected to continue to increase with the continuous expansion of the company's vehicle regulation product categories and continuous penetration into the field of new energy vehicles. Considering that the industry's boom in the first half of the year fell short of expectations, we lowered our profit forecast for the full year. We expect the company's 2024-2026 net profit to be 0.092 billion yuan, 0.153 billion yuan, and 0.225 billion yuan respectively, EPS 0.43, 0.72 and 1.06 yuan/share, respectively, and PE is 31X, 19X, and 13X, respectively.

Risk warning: New customer introduction falls short of expectations; downstream demand recovery falls short of expectations; new product development falls short of expectations; market competition increases risk.