Incident: The company released its 2024 semi-annual report. In 2024, H1 achieved revenue of 0.221 billion yuan, an increase of 31.01% year on year; realized net profit of 0.011 billion yuan, an increase of 185.70% year on year; deducted non-net profit of 0.009 billion yuan, an increase of 171.08% year on year. In 2024, Q2 achieved revenue of 0.114 billion yuan, a year-on-year increase of 25.38% and a month-on-month increase of 7.28%; realized net profit to mother of 9.3183 million yuan, an increase of 278.93%, a significant increase over the previous month; and realized 8.874 million yuan after deducting non-net profit, an increase of 251.60% year-on-year, a significant increase over the previous month.

24H1 turned a loss into a profit year on year, and Q2 profitability continued to improve: in the first half of 2024, the company turned a loss into a profit, mainly due to: 1) the company attached importance to various business development efforts to improve delivery capacity to meet customer needs; 2) the company attached importance to product quality, guaranteed product quality, and further enhanced competitive advantage in the market; 3) the company continued to increase investment in R&D, optimize production processes, and develop new products. In '24, H1's gross margin was 36.66%, +10.34pcts year on year; net margin was 9.27%, +11.59pcts year on year. The company's gross margin in Q2 '24 was 39.76%, +15.79pcts year on year, +6.42pcts month on month; net margin was 13.19%, +13.35pcts year on year, +8.13pcts month on month. In terms of expenses, the sales, management, R&D, and financial expenses of H1 in '24 were 1.13%/9.03%/6.34%/0.67%, respectively, compared with -0.53/-2.49/-2.12/+2.09pcts.

Benefiting from the semiconductor recovery trend, the three major product lines have developed together: with the continuous development of new application markets such as the Internet of Things, 5G communications, and automotive electronics, as well as the huge demand for semiconductor products generated by the increase in silicon content in downstream electronic devices, the semiconductor industry has been pushed into a new round of development cycle. China is the world's largest semiconductor market. In the context of escalating restrictions on components, chips, etc., the localization and autonomy of the semiconductor industry chain will accelerate. According to the Semiconductor Industry Association (SIA), global semiconductor industry sales for the second quarter of 2024 totaled $149.9 billion, up 18.3% year on year and 6.5% month on month. Benefiting from signs of recovery in the semiconductor industry market and rising industry sentiment, in the first half of 2024, 1) the company's semiconductor monocrystalline silicon wafers achieved revenue of 0.1 billion yuan, an increase of 25.58% year on year; gross margin was 37.44%, up 22.95 pcts year on year. 2) Semiconductor monocrystalline silicon rods achieved revenue of 0.055 billion yuan, an increase of 62.04% year on year; gross margin was 30.10%, up 8.70 pcts year on year. 3) Semiconductor power chips and devices achieved revenue of 0.065 billion yuan, up 21.31% year on year; gross margin was 41.12%, down 5.27 pcts year on year.

Active buyback shows business confidence and waits for the IPO project to contribute to performance growth: In February 2024, the company issued a repurchase announcement to use its own funds to repurchase part of the company's shares through centralized bidding transactions to implement an equity incentive plan or employee stock ownership plan, which reflects management's affirmation of the company's intrinsic value and is conducive to promoting the company's long-term development. As of August 30, 2024, the company repurchased 230,000 shares of the company through centralized bidding through a special securities account for share repurchase. The number of repurchased shares accounts for 0.18% of the company's total share capital. The highest transaction price is 27.02 yuan/share, the lowest transaction price is 19.51 yuan/share, and the total repurchase amount is 4,989,205.00 yuan (excluding transaction fees). Furthermore, in the first half of 2024, the company's fund-raising project “Monocrystalline Silicon Wafer Project for High-End Discrete Devices and Very Large Scale Integrated Circuits” was in the process of increasing production and certifying new customers, achieving an efficiency of -15.3648 million yuan, or +44.39% over the same period last year. The company's performance is expected to continue to grow as the semiconductor market gradually picks up, mass production climbing time for the company's fund-raising projects gradually shortens, and product delivery capabilities gradually increase.

Maintaining a “buy” rating: In the first half of 2024, the company's net profit turned a loss into a profit year on year, while profitability continued to increase in Q2. As the semiconductor market gradually picks up, we expect the company to achieve operating targets of 0.45 billion yuan in revenue and total profit of 40 million yuan in 2024. Maintaining the profit forecast, the company's net profit for 2024-2026 is estimated to be 0.042 billion yuan, 0.054 billion yuan, 0.073 billion yuan, EPS 0.32 yuan, 0.41 yuan, 0.56 yuan, and PE 90X, 70X, and 52X respectively.

Risk warning: risk of changes in the semiconductor industry cycle, customer certification of new products falling short of expectations, production capacity falling short of expectations, market competition risks.