Incidents:

The company announced results for the third quarter of 2024. 2024Q1-Q3 achieved revenue of 4.424 billion yuan, +9.48% year over year, net profit due to mother 0.669 billion yuan, +8.28% year over year, net profit of non-return to mother 0.654 billion yuan, +6.59% year over year.

2024Q3 achieved revenue of 1.558 billion yuan, +10.06% YoY, net profit to mother 0.244 billion yuan, +17.91% YoY, net profit not attributable to mother 0.231 billion yuan, +13.74% YoY.

Comment:

Demand improved order growth, and gross margin rose steadily. The company is an established domestic power semiconductor IDM manufacturer. The product line covers MOSFETs, IGBTs & power modules, SiC, rectifier devices, small signals, etc. The 2024Q3 semiconductor market demand gradually improved, and overall orders grew steadily. The company achieved revenue of 1.558 billion yuan, +10.06% YoY and +1.38% month-on-month; benefiting from continued cost reduction and efficiency gains and increased added value of new products, the gross margin rebounded to 33.59%, +1.31pct YoY, +2.27pct. On the expense side, the total cost rate of the four 2024Q3 items was 16.69%, +1.14pct year on year, +3.43pct month on month, of which the financial expense ratio was 0.68%, +1.16pct year over year, and +2.90pct month-on-month, mainly due to fluctuations in foreign exchange rates and a decrease in exchange earnings. On the profit side, 2024Q3 achieved a net profit margin of 15.67%, +1.04pct year on year and -0.22pct month on month; net profit to mother 0.244 billion yuan, +17.91% year over year, and -0.03% month on month.

The growth momentum of automotive electronics is strong, and demand in the consumer and industrial markets is recovering. The company's products are widely used in various fields such as automotive electronics, clean energy, 5G communications, security, industry, consumer electronics, etc. Currently, there are plenty of orders on hand, production capacity is basically at full capacity, and overall product prices have remained stable. Looking downstream: 1) Automotive electronics: The global automotive industry is rapidly transforming to electrification and intelligence. The company accelerated its layout. PTC used the 1200V series single tube to deliver large quantities to car enterprise customers. The 2024Q1-Q3 automotive electronics business revenue was +60% over the same period last year. In addition, the company's self-developed automotive SiC modules have been developed and tested and cooperated by a number of Tier 1 and terminal car companies, and plans to complete batch launch of nationally produced main-driven SiC modules in 2025; 2) Consumer electronics and industry:

Thanks to a gradual recovery in market demand, 2024Q1-Q3 consumer electronics and industrial product revenue both increased by more than 20% year over year.

Adhering to the international development strategy, products are expected to be sold overseas. Currently, leading overseas companies are gradually withdrawing from some of the power markets, and the company's overseas layout is relatively complete, and there is plenty of room for expansion: 1) Vietnam invests in additional subsidiary Mei Weike (Vietnam) Co., Ltd. to further build overseas supply capacity; 2) Continued investment in overseas R&D centers. At the same time, construction of the Vietnamese factory is progressing smoothly, and it is planned to be put into operation by the end of 2024 and the beginning of 2025. We believe that as mainstream automobiles, new energy sources, and AI servers seek global low-cost supply chains, the company's related products are expected to continue to be sold overseas in the future.

Profit forecast and investment rating: The company is expected to achieve operating income of 6.022/7.005/8.501 billion yuan and net profit to mother of 0.925/1.096/1.334 billion yuan in 2024-2026, corresponding PE is 28.57/24.09/19.80 times, maintaining a “buy” rating.

Risk warning: capacity release falls short of expectations; demand falls short of expectations; industry competition intensifies