Incident: In the first half of 2024, the company achieved operating income of 33.589 billion yuan (YoY +15.01%), net profit due to mother 0.14 billion yuan (YoY -88.78%), and net profit not attributable to mother of 0.128 billion yuan (YoY -110.92%). 2Q24 achieved revenue of 17.342 billion yuan (YoY +17.35%); net profit attributable to mother of 0.003 billion yuan (YoY -100.38%); net profit not attributable to mother of 0.042 billion yuan (YoY -105.31%).

Anshi Semiconductor: Due to the cyclical impact of the semiconductor business, the advantages of automotive semiconductors are obvious. In the first half of 2024, the company's semiconductor business achieved operating income of 7.04 billion yuan, a year-on-year decrease of 7.90%, a gross profit margin of 34.95%, and a net profit of 1.08 billion yuan, a year-on-year decrease of 22.40%. Among them, Q2 revenue and profit increased month-on-month, and the gross margin level improved significantly compared to Q1. Q1/Q2 achieved operating income of 3.42 billion yuan and 3.62 billion yuan, respectively, and net profit of 0.52 billion yuan (including 0.17 billion yuan of investment income from the sale of NWF shares) and 0.56 billion yuan, respectively. Separated, revenue from automobiles, mobile and wearable devices, industry and electricity, computer equipment, and consumer sectors accounted for 63.00%, 7.35%, 21.08%, 5.21%, and 3.36%, respectively. The semiconductor business has launched a variety of new products to meet the growing demand for high-performance high-power products in the market, enriching the product portfolio of medium- and low-voltage MOS and protection devices, speeding up the launch of three and a half generation products such as SiC MOSFETs, and continuing to expand materials in the field of analog products, which strongly supports the application of the company's products in consumer electronics, AI data centers, new photovoltaic energy, and new energy vehicles.

Product integration: optimize business management and lay out new future developments. In the first half of 2024, the company's product integration business achieved revenue of 26.12 billion yuan, a year-on-year increase of 26.68%, gross margin of 2.49%, and a net loss of 0.85 billion yuan. Among them, the first quarter and the second quarter achieved revenue of 12.42 billion yuan and 13.7 billion yuan, respectively, and net losses of 0.35 billion yuan (including 0.11 billion yuan of financial expenses of convertible bonds) and 0.5 billion yuan (including financial expenses of 0.11 billion yuan of convertible bonds), respectively. The overall gross margin of the product integration business declined year-on-year in the first half of 2024 due to factors such as lower prices for new projects, higher prices for some raw materials, and rising labor costs in factories. Looking ahead to the second half of the year, the profitability of the company's product integration business will be substantially improved. As the business strategy is further focused, the company will rely on traditional advantageous businesses such as mobile phones and tablets to continue to increase the share of notebooks for specific customers, and grow rapidly in new businesses such as automotive, AIoT, and home appliances to improve the performance of the company's product integration business.

Profit forecasts and investment recommendations. We believe that the company has formed a development pattern of ODM and semiconductor two-wheel drive. Anshi's semiconductor industry has a stable position. Combined with future capacity expansion and steady growth, the product integration business is expected to experience a rebound in performance after the new product cultivation period. We expect the company to achieve EPS of 0.87, 1.88 and 2.44 yuan respectively in 2024-2026. We will give the 2024 PE28-30X, corresponding to a reasonable price range of 24.36-26.10 yuan/share, giving it a “superior to the market” rating.

Risk warning: Smartphone market demand falls short of expectations, ODM industry competition intensifies, and demand for optical modules falls short of expectations.