Incident: The company released its report for the third quarter of 2024. During the reporting period, it achieved operating income of 0.911 billion yuan, a year-on-year increase of 51.36%, achieved net profit of 0.169 billion yuan, an increase of 221.68% over the previous year, and achieved net profit deducted from non-mother 0.167 billion yuan, an increase of 224.03% over the previous year.

The company reached a record high in the third quarter and continued to grow rapidly. The company achieved revenue of 2.16 billion yuan in the first three quarters, yoy +48.47%, net profit due to mother 0.352 billion yuan, yoy +354.9%, net profit of 0.343 billion yuan, yoy +417.14%, gross profit margin 36.52%, yoy +1.71 pct; of these, Q3 achieved operating income of 0.911 billion yuan, yoy +51.36%, qoq +29.12%, and achieved net profit of 0.169 billion yuan, yoy +221.68%, qoq +46.75%, net profit without return to mother 0.167 billion yuan, yoy +224.03%, qoq +50.32%, gross profit margin 37.34%, high during the year, yoy+1.26 pct, qoq+0.48 pct. In terms of expenses, R&D expenses continued to grow to 0.146 billion this quarter, and the R&D expenses rate decreased month-on-month due to increasing revenue scale. This quarter was 16%, and the month-on-month decline of 4 pcts led to profit elasticity. Relying on the company's continued growth in AIoT, particularly in automotive electronics, industrial, and consumer markets, the third quarter was the traditional peak season for the industry, and the company's revenue in the third quarter reached a record high in a single quarter.

The AIoT industry's intelligent penetration rate has increased, and downstream demand has driven a high increase in the company's performance. In the first three quarters of 2024, demand for the company's AIoT product lines showed mass growth. The company is a leading domestic AIoT SoC manufacturer. It has been deeply involved in the industry for many years, and is committed to providing a multi-scenario computing AIoT platform for downstream customers based on AIoT's various technologies, products, and scenario advantages. Using the RK3588 series as its flagship, it forms a multi-level product portfolio that meets different needs in various product lines, and leverages NPU's advantages in AI algorithm implementation to promote a continuous increase in AIoT's share in multiple AIoT product lines. Currently, it has a good advantage in the field of automotive electronics. The flagship product RK3588M has been introduced by mainstream car manufacturers and mass-produced in mid-range and high-end models. In terms of new products, leading customers in target fields such as RK3576, RK2118, and RV1103B were quickly introduced, forming new increments, and will continue to release incremental value in the future. As the trend of localization and miniaturization of AI models at the edge and terminals becomes more clear, the company's performance is expected to benefit from the rapid growth of AIoT intelligent development.

Under the wave of end-side AI, computing power chip manufacturers are expected to rise sharply in volume and price. End-side AI is currently a key promotion direction for large manufacturers at home and abroad. AI agents will replace humans in complex task scenarios, which will accelerate productivity innovation, increase the ROI of large companies, and enter a positive cycle. Furthermore, demand for multi-scenario inference has exploded, and computing power is entering a second growth curve. The company's flagship chip, RK3588, is the domestic flagship SoC product. Its performance is directly comparable to overseas high-end products. It is used in automotive, ARVR, ARM PCs, edge computing and other fields. It is one of the few localized choices for middle and high-end consumer scenarios, and is extremely scarce.

In the field of edge computing servers, the company's business is progressing rapidly, and it is expected to enter a rapid growth channel with the AI wave. After 2 years of accumulation, the number of mass production customers and projects for the company's flagship chip RK3588 continues to increase, entering a period of rapid growth. New and sub-new products represented by RK3576 and RV1106/1103 are also being released at an accelerated pace, and there is plenty of room for growth.

Considering that end-side AI is expected to drive the release of the company's high-end flagship products, we raised the company's net profit of 0.465/0.651/0.846 billion in 2024-2026 (0.349/0.538/0.709 billion yuan 24-26 years ago), and the corresponding PE valuation is 80/57/44 times, respectively, maintaining a “buy” rating.

Risk warning: Industry sentiment falls short of expectations; uncertainty about downstream progress; new product iterations fall short of expectations.