Incident: The company released its 2024 semi-annual report. In the first half of 2024, the company achieved operating income of 0.515 billion yuan, +62.37% year over year; realized net profit of 0.143 billion yuan to mother, +124.93% year over year. In the second quarter of 2024, the company achieved operating income of 0.267 billion yuan, +54.02% YoY/+8.18% month-on-month; net profit to mother of 0.092 billion yuan, +118.24% YoY/+79.82% month-on-month.

Downstream demand is picking up, and various product lines are developing steadily, and the profitability of product structure optimization has greatly increased.

Demand in the downstream application market gradually picked up in the first half of 2024. The company's various product lines developed steadily, industrial-grade EEPROM products and voice coil motor driver chip products were successfully iterated, and shipments of SPD products, NOR Flash products, and automotive-grade EEPROM achieved rapid year-on-year growth. In the first half of 2024, the company achieved revenue of 0.515 billion yuan, +62.37% year on year; in the second quarter, revenue of 0.267 billion yuan, +54.02% 6/month on month +8.18%. The sales share of the company's SPD products and products used in high-value-added markets such as automotive electronics and industrial control increased significantly. In the first half of 2024, net profit to mother was 0.143 billion yuan, +124.93% year over year; in the second quarter, net profit to mother was 0.092 billion yuan, +118.24% /month on month +79.82%. The gross margin of 24H1 was 54.70%, +7.22pct; the gross margin for the second quarter was 54.77%, +7.32pct/month-on-month +0.15pct. In the first half of 2024, the company's sales/management/finance/R&D expense ratios were 5.12%/5.12%/-1.69%/15.96%, respectively, with year-on-year changes of -0.80pct/-1.59pct/0.46pct/-6.87pct, and product lines such as SPD, EEPROM, and NOR Flash blossomed.

(1) SPD products: The company is the world's leading supplier of SPD products, benefiting from Windows 11 and AIPC driving the switching cycle. Demand in the global PC market is clearly picking up, the penetration rate of superimposed DDR5 memory modules continues to increase, and the inventory levels of downstream memory module manufacturers have improved. The sales volume of the company's SPD products supporting DDR5 increased significantly year-on-year. (2) EEPROM: Industrial-grade EEPROM products, used in smartphone camera modules, LCD panels, and high reliability segments in the industrial control field

The sales volume of EEPROM products in the market is growing rapidly. In the field of automotive-grade EEPROM products, the company has initially formed a mature automotive-grade EEPROM product series, and has gradually accumulated good brand awareness and high-quality customer resources. The company is actively expanding key overseas markets such as Europe, South Korea, and Japan. Automotive-grade EEPROM products were successfully introduced to many of the world's leading automotive electronics Tier1 suppliers. Product sales and revenue increased rapidly compared to the same period last year, and accelerated penetration into automotive core component applications. (3) NOR Flash: The company has developed a series of NOR Flash products with independent intellectual property rights based on the NORD process platform, and has achieved large-scale supply to application markets such as e-cigarettes, TWS Bluetooth headsets, AMOLED mobile phone screens, and PLC components. Sales of products exceeded 0.17 billion units in the first half of the year, and shipments in the second quarter increased by more than 100% month-on-month compared to the first quarter. The company has continuously improved its product layout. NOR Flash products covering 512 Kb-32 Mb capacity have been shipped in large quantities, NOR Flash products covering 64MB-128MB have successfully completed streaming, and NOR Flash products covering higher capacity have also completed project establishment, and circuit design and development is ongoing. At the same time, automotive-grade NOR Flash products with a capacity of 512 Kb-8 Mb have passed the AEC-Q100 Grade 1 electronic reliability test verification, and the 4MB A1-grade NOR Flash product won the “2023 China IC Design Achievement Award - Best Memory of the Year”.

Investment advice:

We expect the company's 2024-2026 revenue to be 1.045/1.38/1.695 billion yuan, respectively, and net profit to mother of 0.34/0.479/0.627 billion yuan, respectively. Corresponding to the current stock price PE is 23/16/12x, respectively, maintaining a “buy” rating.

Risk warning:

Risk of R&D progress falling short of expectations, risk of fluctuations in business performance due to changes in downstream market demand, risk of international trade friction, etc.