Incidents:

The company released its report for the third quarter of 2024. In the first three quarters of 2024, the company achieved operating income of 53.161 billion yuan, an increase of 19.70% over the previous year; the company achieved net profit of 0.415 billion yuan, a year-on-year decrease of 80.26%. Among them, in the 24Q3 quarter, the company achieved operating income of 19.571 billion yuan, a year-on-year increase of 28.71%, and a month-on-month increase of 12.85%; net profit to mother was 0.274 billion yuan, turning a loss into a profit month-on-month. The company achieved a gross sales margin of 10.95% in a single quarter in 24Q3, an increase of 1.23 pcts over the previous quarter, and a significant improvement in profitability. The company's semiconductor business is recovering steadily, and the product integration business is improving profits through a multi-pronged approach. It is breaking out of a fundamental low point, and growth can be expected.

Benefiting from the recovery of the consumer electronics industry, the company's semiconductor business continued to grow 2024Q3. The company's semiconductor business continued to exert its leading edge in the automotive sector. Revenue in the automotive, industrial and power sectors remained steady. Benefiting from the rapid month-on-month recovery of revenue in consumer electronics such as mobile and wearable devices, computer equipment, and consumer sectors, the company's semiconductor business achieved revenue of 3.832 billion yuan, an increase of 5.86% over the previous month. The company actively strengthens internal control, increases business sales volume and utilization rate, and achieves continuous improvement in profitability. The company's semiconductor business gross margin for the 24Q3 quarter was 40.5%, up 2.8 pcts year on year and 1.8 pcts month on month, achieving net profit of 0.666 billion yuan, up 18.92% month on month. According to the company's announcement, Anshi Semiconductor invested 0.2 billion US dollars to develop next-generation WBG products, establish production infrastructure at the Hamburg plant, and increase the fab's Si diode and transistor production capacity. In addition, the company relies on the Shanghai Lingang 12-inch automotive-grade fab invested by the controlling shareholder to accelerate the 8-inch to 12-inch process upgrade of the company's products, and the company's semiconductor business is expected to usher in new growth.

Under a multi-pronged approach, product integration business performance has improved markedly:

The company's product integration business achieved revenue of 15.73 billion yuan in a single quarter of 24Q3, up 45.58% year on year, 14.79% month on month, gross margin of 3.8%, up 1.8 pcts month on month. After deducting convertible debt expenses and exchange losses, the profitability of the company's product integration business improved dramatically in a single quarter. The main reasons were 1) seizing incremental opportunities to serve customers with high ASP products, and some new projects led a significant year-on-month increase in revenue in 24Q3; 2) optimizing business cooperation terms between suppliers and customers and introducing new suppliers; 3) strengthening internal cost control and improving operational efficiency. Looking forward to the future, the company's many initiatives will continue to advance, and the revenue and profitability of the product integration business is expected to further improve.

Investment advice:

We expect the company's revenue growth rates from 2024 to 2026 to be 18.4%, 8.4%, and 9.9%, respectively, and net profit growth rates of -4.8%, 145.1%, and 23.6%, respectively. Traditional dominant businesses such as mobile phones and tablets in the company's product integration business are expected to benefit from the recovery of the consumer electronics industry and achieve internal profit improvements. The introduction of new products is expected to optimize profitability. The semiconductor business is expected to benefit from the development of the smart car industry and the investment of new production capacity by major shareholders. Several of the company's major businesses will resonate positively, and the 24Q3 performance recovery is already evident. We are optimistic about the company's profit level in 2025. Therefore, we maintain the company's buy-A investment rating, with a 6-month target price of 40.50 yuan, which is equivalent to a dynamic price-earnings ratio of 45.00x in 2024.

Risk warning: Sales volume of consumer electronics terminal products falls short of expectations, industry competition intensifies, and exchange rate fluctuations.