2Q24 achieved year-on-year revenue growth. The company mainly uses storage particles as raw materials to develop storage module products. The products include embedded storage, solid state drives (SSD), memory sticks, and mobile storage (USB drives, memory cards). Affected by market weakness, the operating profit of each 1H23 storage granule factory fell into a negative range. As upstream manufacturers continued to cut production and supply contraction, storage prices recovered significantly from 4Q23, entering a moderate recovery in 2Q24, and the price growth rate slowed. Against this background, the company achieved revenue of 4.59 billion yuan (YoY +106.1%, QoQ +2.99%), net profit to mother of 0.21 billion yuan (YoY +166.47%, QoQ -45.41%). Profit 0.176 billion yuan (YoY +154.61%, QoQ -51.62%), gross profit margin 22.65% (YoY+22.12pct, QoQ-1.74pct).

2Q24 market demand gradually diversified, and the share of high-end product inventory increased. As module manufacturers and downstream preparation were completed, consumer electronics demand recovered moderately. Compared with 1Q24 and 2Q24 consumer application shipments slowed down. According to Trendforce data, 2Q24 consumer NAND Flash retail channel shipments decreased by 40% per year, and superimposed NAND Flash wafer prices continued to rise, increasing the operating costs of module manufacturers; while enterprise-grade SSDs were driven by AI servers, the cumulative increase of 80% since 4Q23; therefore, the company's inventory reserves are mainly differentiated for enterprise-level and other fast-growing products goods.

Small-capacity storage has accumulated shipments of more than 50 million units, and enterprise-grade storage is gradually starting. 1H24's enterprise-grade storage revenue reached 0.291 billion yuan, an increase of 2000% over the previous year; it has launched a variety of high-speed eSSD products, covering the mainstream capacity of 480GB to 3.84TB. The self-developed PCIe SSD and SATA SSD series have completed compatibility adaptation with multiple domestic CPU platform servers from Kunpeng, Haiguang, Longxin, Feiteng, Megaxin, and Shenwei, and has “eSD+RDIMM” product capabilities. The company's self-developed main control chips have been used in more than 10 million units; small-capacity memory chips have built a customer matrix with automobiles as the main body and the Netcom industry as the supplement, and the cumulative shipment volume has far exceeded 50 million.

Acquisitions are progressing steadily, and the global business layout continues. After the company acquired Lexar (Lexar) in '17, 1H24Lexar solid-state drives ranked first in market share in Poland and Singapore, CFe memory cards ranked first in China and France, and the brand's retail business has covered more than 50 countries and regions. Brazilian storage brand Zilia and Head Storage Testing Factory, which were acquired in '23, have achieved net profit of 2789.6 and 4.346 million yuan in 1H24, and the domestic and foreign supply chain system has been gradually improved.

Investment advice: Due to the slowdown in consumer electronics demand growth, based on 1H24's operating conditions, the 24-25 revenue pace forecast is estimated to be 1.16/1.07/1.14 billion yuan (previous value 1.52/1.18/1.041 billion yuan), corresponding PE is 24/26/24 times, respectively. We are optimistic about the company's medium- to long-term global business layout and product structure upgrades brought about by enterprise-level products, and maintain a “superior to the market” rating.

Risk warning: Demand in the storage industry falls short of expectations, new product releases fall short of expectations, etc.