Demand in automotive/industrial sectors was sluggish, and 24H1 deducted non-net profit -4% year-on-year, lower than market expectations.

24H1's revenue was 2.107 billion yuan, down 5.15% year on year, and net profit due to mother was 0.197 billion yuan, down 11.10% year on year. After deducting non-return net profit of 0.199 billion yuan, down 3.50% year on year. The year-on-year decline in revenue was mainly due to sluggish market demand in automotive/industrial/medical industries, and the year-on-year decline in memory chip revenue.

24Q2 revenue was 1.1 billion yuan, up 9.20% month-on-month, net profit to mother was 0.11 billion yuan, up 26.33% month-on-month, net profit after deducting 0.117 billion yuan, up 43.21% month-on-month; gross profit margin was 37.68%, up 0.23 pct month-on-month, and net profit margin 9.98%, up 1.32 pct month-on-month. The month-on-month increase in revenue mainly benefited from the month-on-month increase in demand from some automotive/medical and consumer customers for 24Q2 Flash products.

Q2 Computation/storage/simulation revenue all increased month-on-month, and the storage system benefited from the gradual elimination of inventory in the industry market.

The largest product, the memory chip 24H1, had revenue of 1.32 billion yuan, down 12.3% year on year, accounting for 62.5% of revenue; gross profit margin was 35.35%, down 0.71 pct year on year. The year-on-year decline in revenue is mainly due to the fact that market demand for the company's memory chips in the main downstream automotive/industrial/medical industries is still sluggish. Among them, Q2's revenue in a single quarter was 0.68 billion yuan, up 5.5% month-on-month, mainly benefiting from the natural removal of channel inventory in the industry market and an increase in sales in high-capacity Nor Flash markets such as 512 Mb/1 Gb.

The second-largest product, the 24H1 computing chip, had revenue of 0.52 billion yuan, up 10.6% year on year, accounting for 24.8% of revenue; gross profit margin was 32.64%, up 9.14 pct year on year. The year-on-year increase in revenue mainly benefited from continued sales growth in consumer electronics markets such as security monitoring/biometrics/printers/smart home appliances/smart door locks. Among them, Q2's revenue in a single quarter was 0.28 billion yuan, up 17.6% month-on-month.

The third-largest product simulation and connectivity chip 24H1 had revenue of 0.23 billion yuan, up 23.4% year on year, accounting for 11.0% of accounts receivable; gross profit margin was 52.09%, down 0.36 pct year on year. The year-on-year increase in revenue was mainly due to the continued promotion of LED driver chips. Among them, Q2 revenue in a single quarter was 0.13 billion yuan, up 18.9% month-on-month.

The first 21nm DRAM is expected to launch samples of 24H2, laying the groundwork for the company's future growth.

(1) In terms of memory chips, the first 21nm DRAM is expected to be sampled at 24H2, and 20nm DRAM research and development will begin at the same time. (2) In terms of computing chips, 24H1 is filming the T32 chip for the industry-level dual camera product market in the field of security monitoring, and streaming the MPW, an optimized version of the C-series chip for the pan-video field. (3) In terms of analog and interconnection chips, various LED driver chip products have been launched; GreenPhy's first product can already be mass-produced, and some customers have introduced and implemented the products.

The world's leading automotive IC company, has a comprehensive layout of “computing+storage+simulation” and maintains a “gain” rating.

The company is a scarce automotive IC leader in China, with a comprehensive layout of automotive-grade chip platforms. With the collaborative development of the company's various segments, the company's net profit from 2024 to 2026 is expected to be 0.587/0.697/0.895 billion yuan respectively, corresponding to PE of 50.6/42.7/33.2 times in 24/25/26, maintaining a “gain” rating.

Risk warning: macro risk; product development risk; gross margin decline risk; inventory risk, etc.