The company announced third-quarter results: revenue of 2.377 billion yuan, up 16.12% year on year, up 9.56% month on month; net profit to mother was 0.092 billion yuan, up 21.60% year on year and decreased by 14.68% month on month. In the first three quarters, the company achieved revenue of 6.775 billion yuan, up 35.05% year on year; net profit to mother was 0.279 billion yuan, up 771.94% year on year. The rapid year-on-year increase in Q3 revenue and net profit was mainly due to: 1) demand for downstream TVs, smartphones, etc. gradually picked up, and the company's DDIC demand increased, and capacity utilization increased to full capacity; 2) the company raised OEM prices for some products in June; 3) the CIS platform continued to expand with major customers. We are optimistic that the company's LCD and TDDI demand will rise steadily, and that the revenue contribution of high-end products such as CIS/OLEDDDDIC will increase rapidly and maintain a “buy” rating.

3Q24 review: The steady recovery in demand drove revenue growth month-on-month. CIS production capacity continued to be fully loaded. After experiencing revenue fluctuations in Q2, the company was able to increase in Q3 revenue as demand for terminal consumer electronics continued to rise. The company's production capacity has been at full capacity since March. Among them, the CIS platform is in short supply, driven by field expansion and share growth of core customers. At the same time, the company's new products are progressing smoothly. At present, 55nm medium and high-end single-chip and stacked CIS chip process platforms have been mass-produced, 40nm high-voltage OLED chip process platforms have been produced in small batches, and 28nm logic chips have passed functional verification. In terms of price, the company raised prices for some products with insufficient production capacity to improve the company's Q3 gross margin, which increased 2.93 pcts to 26.79% over the previous month. As a result, net profit after deduction in Q3 achieved rapid year-on-month growth, reaching 0.085 billion yuan. (YoY: 293.02%; QoQ: 126.68%) 4Q24 outlook: 55nm CIS is expected to continue to drive revenue growth. Focus on the development of new OLED products. Due to the current shortage of production capacity on CIS platforms, we expect demand for 55nm CIS from major customers will continue to increase. The superimposed company's 40nm OLED driver chip platform is expected to gradually enter mass production. We expect the company to expand production capacity by 20kwpm in the fourth quarter, and the total production capacity will reach 157 kwpm by the end of the quarter. On the price side, we believe that the optimization of the company's product structure will offset the price pressure of the LCD-driven platform. ASP is expected to remain stable. We expect the company's Q4 revenue and gross margin to continue to increase sequentially. It is worth noting that the company's 28nm logic chip has passed functional verification in Q3. We expect the company's 28nm OLED driver chips to be mass-produced in the first half of 2025, which will be an important driving force for performance growth in the future.

Target price is $28.24, maintaining a “buy” rating

We are optimistic that the diversification of the company's product structure will lay the foundation for medium- to long-term growth, but considering the company's short-term investment in R&D of new products, we lowered our 2024/2025/2026 net profit forecast by 28%/7%/23% to 0.424/0.823/1.086 billion yuan, corresponding to EPS of 0.21/0.41/0.54 yuan. Based on 25E BPS of 11.29 yuan, 2.50x PB (3.1x discount compared to the industry average, mainly due to DDIC price pressure and higher depreciation during the active expansion period of production capacity), corresponding to the target price of 28.24 yuan, maintained a “buy” rating.

Risk warning: the semiconductor industry is declining; the risk that the localization process falls short of expectations; R&D falls short of expectations.