Incident: The company released its 2024 semi-annual report. 2024H1, the company's revenue was 6.718 billion yuan, +32.02% year over year; net profit to mother was 0.223 billion yuan, +254.23% year over year; after deducting non-net profit of -0.036 billion yuan, the year-on-year loss was reduced by 81.09%. The company's Q2 revenue in 2024 was 3.612 billion yuan, +26.75% YoY, +16.30%; net profit to mother was 0.166 billion yuan, -2.10% YoY, +190.53% month-on-month; after deducting non-net profit of 0.041 billion yuan, a significant year-on-year reversal of losses and a significant month-on-month reversal of losses.

Industry prosperity gradually recovered, and profitability was clearly restored: 2024H1 gradually recovered in the integrated circuit market and entered steady growth. At the same time, the company continued to pay attention to customer needs and market changes, seize continuously recovering market opportunities, strengthen communication and service work with customers, and strive to obtain orders, resulting in a significant year-on-year increase in the company's business performance. In terms of profitability, 2024H1's gross margin was 10.91%, +2.99pcts year on year; net margin was 3.45%, +1.97pcts year on year. The main reason for the recovery in gross margin was the beginning of 2023, especially since entering 2024. The industry showed signs of recovery, and the company's business conditions continued to improve. In terms of expenses, 2024H1's sales, management, R&D and financial expenses rates were 1.01%/4.67%/6.29%/0.80%, respectively. The year-on-year changes were +0.09/-0.45/+0.38pct, respectively. The level of cost rate control was good, but the absolute value of sales and R&D expenses increased year-on-year, mainly because the company increased sales efforts and R&D investment to promote performance repair and long-term profitability.

The scale of advanced packaging continues to expand, and we expect mass production to win more orders: the company continues to pay attention to customer needs and market changes, and seize market opportunities that continue to pick up. Among them, 24H1, the company spent more than 2 billion yuan on fixed assets, mainly investment related to advanced packaging, accounting for about 70-80%. The annual capital expenditure is estimated to be around 3.5 billion. In addition, the company's fund-raising investment projects continue to advance. Huatian Jiangsu and Huatian Shanghai have completed all pre-production preparations and entered the production stage. Pangu Semiconductor initiated FOPLP production line construction. With the company's fund-raising investment project and the commissioning of the advanced packaging industry base, it will further optimize the company's industrial layout and increase the scale of the company's advanced packaging industry. At the same time, the production scale of the company's automotive electronic packaging products continues to expand, and 2.5D and FOPLP projects are progressing steadily. Double-sided molded BGA SiP, ultra-integrated uMCP, 12-inch lidar products, etc. have mass production capacity. uPOP, high-heat dissipation HFBGA, large-size high-density QFN, and Bluetooth low-energy tire pressure products based on the TMV process have been mass-produced. With the continuous expansion of advanced packaging scale and gradual mass production of products, the company is expected to receive more orders in the future, helping the company's performance to recover further.

Industrial upgrading is driving strong demand for ICs, focusing on R&D to respond to market recovery: Since 2024, the global semiconductor market has shown a recovery trend. According to data from the American Semiconductor Industry Association, global and Chinese semiconductor market sales have maintained double-digit growth since 2024. Thanks to a combination of factors such as policy support, market demand and capital promotion, the scale of China's semiconductor industry has grown rapidly, and its share of the global market continues to increase. Market applications such as consumer electronics, rapidly developing computers, and network communications have become the main application areas for integrated circuits in China. With the upgrading of consumer electronics such as smartphones and tablets, as well as the transformation and upgrading of traditional industries, application scenarios such as automotive electronics, security, and artificial intelligence will continue to drive strong demand for integrated circuits. To this end, the company attaches importance to integrated circuit packaging technology and product innovation, continuously increases investment in R&D, and determines that advanced packaging testing is the R&D development direction. In recent years, the company's R&D investment has remained above 5% of revenue. 24H1 invested 0.423 billion yuan in R&D, accounting for 6.29% of revenue. Currently, the company's key research and development includes advanced packaging technology and packaging products such as Fan-Out, FOPLP, automotive electronics, and memory. The company's continuous investment in R&D, combined with strong IC market demand, will enable the company to better respond to market demand in the future.

Maintaining the “gain” rating: The company has now mastered advanced integrated circuit packaging technology such as SiP, FC, TSV, Bumping, Fan-Out, WLP, and 3D, and the company continues to expand its business areas. In the future, as the scale of the company's advanced packaging industry continues to expand, automotive electronic packaging products will be mass-produced and sales will be promoted in an orderly manner. Combined with the steady recovery of the integrated circuit market, the company's products will meet market demand and bring more growth to the company's performance. We maintain our profit forecast for 2024-2026. The company's net profit for 2024-2026 is 0.684/1.088/1.549 billion yuan, the corresponding EPS is 0.21/0.34/0.48 yuan, and the corresponding PE is 38/24/17 times.

Risk warning: Risk of rising product costs, risk of failure in technology development and new product development, risk of semiconductor industry prosperity falling short of expectations, and production capacity expansion falling short of expected risk.