Jing Jiawei released its three-quarter report. In Q1-Q3 of 2024, revenue was 0.441 billion yuan (yoy -5.99%), net profit of 23.8743 million yuan (yoy +53.28%), and deducted non-net profit of 6.4479 million yuan (year-on-year loss).

Among them, Q3 achieved revenue of 91.153 million yuan (yoy -26.55%, qoq -62.26%) and net profit to mother of -10.28 million yuan (year-on-year loss). The company's 24Q3 revenue declined year-on-year, mainly due to delays in procurement demand from downstream customers. We believe that as the company's GPU products continue to be iterated, intelligent computing+ graphics products are expected to drive the company's rapid revenue growth in 25 years.

Strengthen cost control and improve management efficiency

The overall gross margin of the 24Q1-Q3 company was 53.85%, a year-on-year change of -6.99pct. 24Q1-Q3's sales/management/ R&D expense ratios were 5.67%/15.93%/42.84%, respectively, -2.54 pct/-2.94 pct/ -8.14 pct. The year-on-year decline in cost rates is expected mainly due to the company continuing to push forward internal management system reforms, strengthen cost control, and achieve results in cost reduction and efficiency.

GPU products accelerate iteration, and intelligent computing+graphics are expected to drive revenue growth. On March 12, 2024, the company issued the “Voluntary Disclosure Notice on the Company's New Product Development Progress”, officially releasing Jinghong's series of high-performance intelligent computing modules and machine products, which support mixed precision computation such as INT8, FP16, FP32, FP64, etc., and support new multi-card interconnection technology to expand computing power, filling the company's product gaps in AI training, AI reasoning, and scientific computing applications. Furthermore, according to the company's 2024 three-quarter report, the company is continuing to promote follow-up research and development of new graphics processing chips. Currently, the new graphics processing chips are in the streaming stage. We believe that as the company continues to refine GPU products, the pace of commercialization is expected to accelerate, or drive the company's revenue to grow rapidly in 25 years.

The fixed increase plan has been implemented, and chip industrialization is expected to gradually be implemented

On October 25, 2024, the company issued the “Report on Issuance of Shares to Specific Targets”. The company issued 0.064 billion A shares to specific targets at an issue price of 59.91 yuan/share, and the actual net capital raised was 3.827 billion yuan. This fund-raising project is mainly used for the development and industrialization of high-performance general-purpose GPU chips and the construction of advanced general-purpose GPU architecture R&D centers. We believe that with the implementation of the fixed increase plan, the company's chip industrialization is expected to gradually be implemented, and ecological barriers are expected to continue to be consolidated.

Profit forecasting and valuation

Consider the pace or acceleration of commercialization of GPU deployment and raise the revenue forecast for the chip business. The estimated net profit for 24-26 is 0.174, 0.212, and 0.266 billion yuan (previous values: 0.173, 0.209, 0.265 billion yuan). Using the segmented valuation method, the GPU business is comparable to the company's average 25E 33.5x PS. Considering that the GPU business revenue CAGR in 24-25 was 137%, which is 54% higher than the average of comparable companies, 25E 67.4xPS is given; other businesses compare the average 25E 28.7x PE, giving 25E 28.7x PE. In summary, the company was given a target market value of 48.166 billion yuan and a target price of 105.02 yuan (previous value of 62.75 yuan) to “buy”.

Risk warning: Chip production costs are rising, and downstream demand falls short of expectations.