In 3Q24, the company achieved revenue of 2.041 billion yuan (yoy: +42.83%, qoq: +2.97%), net profit of 0.315 billion yuan (yoy: +222.55%, qoq: +0.93%), net profit of 0.304 billion yuan (yoy: +367.35%, qoq: +4.94%). Overall market demand recovered slowly in the third quarter, and inventories in the industrial, storage and computing markets were basically digested and recovered. The company's NOR Flash, MCU and other businesses showed good operating resilience, but due to pressure on niche DRAM prices, 3Q24 revenue only increased slightly from month to month. Thanks to product structure optimization and cost improvement, 3Q24's gross margin increased to 41.77% (yoy: +5.4pct, qoq: +3.6pct), which combined with the effectiveness of cost control to offset the impact of exchange losses, the net interest rate was 15.44% (qoq: -0.3pct). We are optimistic that the company will continue to improve its product layout, and it is expected that it will continue to increase its share in the MCU and storage sector and maintain a “buy” rating.

3Q24 review: Niche DRAM prices weakened, industrial/storage/computing market inventories were effectively eliminated in the third quarter. Against the backdrop of weak market recovery, the company's revenue still achieved steady year-on-month growth. In terms of demand, the consumer and Netcom markets continued the recovery trend in the first half of the year. Inventory in the industrial, storage and computing markets was also effectively removed, and downstream customer stocking was restored. In terms of prices, the prices of products such as NOR Flash and MCU have all remained relatively stable, while niche DRAM was affected by increased market competition, and product prices may have declined. In terms of gross margin, 3Q24's comprehensive gross margin was 41.77% (yoy: +5.4pct, qoq:

+3.6pct), the month-on-month improvement is significant, and it is expected that the revenue share of lower gross margin products, such as niche DRAM, will decline. In addition, the company's cost control effect was shown. The total cost of 3Q24 (sales+management+R&D) totaled 0.474 billion yuan (qoq: -

8.40%), of which R&D costs 0.258 billion yuan (qoq: -

14.55%),

Financial expenses increased by 0.119 billion yuan compared to the second quarter, mainly due to exchange losses due to exchange rate fluctuations.

4Q24 & 2025 outlook: MCU demand continues to recover, focusing on the recovery in storage prices. Considering that the fourth quarter is a low consumer electronics season, and currently niche DRAM prices are still under pressure, we expect 4Q24's revenue to decline slightly month-on-month, but we are still optimistic that the company's performance will continue to grow steadily in the medium to long term:

1) MCU: Demand in the industrial sector is picking up one after another, and the company expects MCU shipments to break through the record high in 24 years. At the same time, the company continues to strengthen product layout and market promotion in automotive and other fields, with broad room for growth. 2) DRAM: The company's product layout is becoming more and more perfect, covering Netcom, TV and other markets and major customer groups. The estimated amount of transactions related to Changxin was further increased from 0.12 billion US dollars to 0.14 billion US dollars in 24. Furthermore, the company's DDR4 8Gb products have entered the small-batch production stage and are expected to achieve large-scale mass production next year. 3) Flash: Prices have stabilized. NOR Flash has further strengthened its layout in the automotive and industrial fields. The SLC NAND product capacity has covered 1Gb to 8Gb, and its market share has been steadily increasing.

Investment suggestion: The target price is 115.7 yuan, maintaining the 24-year “buy” rating. We expect the company's net profit to be 1.082/1.605/2.083 billion yuan in 24/25/26. Considering that the company's MCU business is expected to benefit from the recovery in downstream market demand and ushered in rapid growth, and the continued increase in niche storage market share, we give 48x 25PE (comparable Wind unanimously expected 42x), target price of 115.7 yuan, “buy” .

Risk warning: New product development falls short of expectations, product prices continue to fall, and market competition intensifies.