Key investment points: Sales in the semiconductor silicon wafer and power device business are growing, but prices are still under pressure; the compound semiconductor RF chip business is growing rapidly.

24H1 revenue increased year over year, and net profit after deduction is still under pressure. Leon Micro 24H1 achieved operating income of 1.459 billion yuan, up 8.69% year on year; net profit to mother of 66.8564 million yuan, down 138.50% from the same period last year; net profit after deducting non-return to mother - 41.5914 million yuan, down 183.14% from the same period last year. On a quarterly basis, 24Q2 achieved revenue of 0.78 billion yuan in a single quarter, up 9.83% year on year; net profit after deduction of 7.7701 million yuan, down 70.72% year on year and up 115.74% month on month; gross profit margin was 14.55%, up 4.67 pct month on month. As can be seen, with the bottom of the semiconductor industry's boom and the company strengthened market expansion and product structure adjustments, product sales achieved year-on-year growth; however, due to successive conversion of production expansion projects in 2023, depreciation expenses increased a lot, and sales unit prices of silicon wafer products and falling stock prices of listed companies led to fair value change losses, etc., causing the company's profits to continue to decline year on year.

Sales in the semiconductor silicon wafer business have increased, and there are signs of a steady recovery in prices. Semiconductor silicon 24H1's revenue of 1.022 billion yuan (including revenue of 0.151 billion yuan of Opponent's parent company) increased 12.96% year over year, up 15.13% month on month; equivalent sales volume of 6 inch chips was 6.6885 million chips (including 0.9945 million units sold by Opponent's parent company), up 46.22% year on year and 26.94% month on month. Among them, 12-inch silicon wafers sold 0.4075 million wafers (equivalent to 6-inch 1.6299 million wafers), up 89.63% year-on-year and 43.65% month-on-month. In terms of price, the price of 24Q1 silicon wafers continues to be under pressure. Since 24Q2, due to factors such as tight production capacity and product structure adjustments, the average shipping price of 6/8-inch silicon wafers has increased month-on-month, while the price of 12-inch silicon wafers has remained stable.

Prices of semiconductor power device chip products are still declining, sales are growing slightly, and the compound semiconductor RF chip business is growing rapidly. Semiconductor power device chip products include 24H1 revenue of 448.1915 million chips, from plane to groove, from Schottkey/MOSFET/TVS to FRD/IGBT, down 16.62% year on year and 8.85% month on month; sales volume was 0.9016 million chips, up 4.96% year on year and 5.22% month on month. As can be seen, sales of semiconductor power device chip products have increased, but prices are still on a downward trend.

Compound semiconductor RF chips include 6-inch gallium arsenide microwave RF chips, VCSEL chips, etc. 24H1 achieved revenue of 128.3699 million yuan, up 233.89% year on year and 29.79% month on month; sales volume of 0.0176 million chips increased 288.18% year on year and 31.84% month on month.

Profit forecasting and investment advice. We expect the revenue of Leon Micro 2024E-2026E to be 3.089 billion yuan, 3.655 billion yuan, and 4.313 billion yuan, respectively, and net profit to mother 0.142 billion yuan, 0.326 billion yuan, and 0.452 billion yuan. Using the segmented valuation method, combined with comparable company valuations, we believe that the company's reasonable market value range is 16.063 billion yuan to 18.631 billion yuan, corresponding to a reasonable value range of 23.93 yuan/share to 27.75 yuan/share, maintaining a “neutral” rating.

Risk warning: the risk that silicon wafer prices will continue to fall, the recovery in downstream terminal demand is too weak to further improve capacity utilization, the market competition pattern is intensifying, the market expansion progress of 12-inch silicon wafers is lower than expected, and the upward climb of RF gallium arsenide chips is slower than expected.