Key points of investment

Q3 Revenue continued to grow rapidly, and the net profit margin to the mother improved relatively well

In the first three quarters of 2024, the company's various business segments continued to improve, and the overall business situation continued to recover. Cumulative operating income was 7.04 billion yuan, up 28.30% year on year, net profit to mother was 0.355 billion yuan, up 6.29% year on year, and net profit after deducting non-return net profit of 0.334 billion yuan, up 7.21% year on year.

In the third quarter of a single quarter, the company achieved operating income of 2.471 billion yuan, a year-on-year increase of 30.83%, a year-on-month decrease of 4.46%, net profit of 0.157 billion yuan, an increase of 11.90% year-on-year, an increase of 55.19% month-on-month, and net profit of 0.158 billion yuan after deducting non-return net profit of 0.158 billion yuan, a year-on-year increase of 25.57% and a month-on-month increase of 69.48%.

The controller business is improving, and Chengchang's TR chip business is beginning to show an inflection point

Controller business: Continue to improve. In the first three quarters of 2024, the controller business segment achieved revenue of 6.94 billion yuan, a year-on-year increase of 30.53%, and net profit to mother of 0.37 billion yuan, an increase of 19.56% year-on-year, after deducting non-return net profit of 0.354 billion yuan, an increase of 22.00% year-on-year. In the third quarter of a single quarter, revenue from the controller business segment was 2.443 billion yuan, up 29.70% year on year, and net profit to mother was 0.161 billion yuan, up 9.78% year on year. After deducting net profit from non-return to mother, 0.162 billion yuan, up 23.85% year on year.

Against the backdrop of a steady rise in industry prosperity, the company continues to increase customer development, further increase its market share, increase R&D to promote product and technological innovation, further expand the application of high-value-added products, and is expected to continue to grow steadily in the future.

TR chip business: An inflection point began to appear in the third quarter. In the first three quarters of 2024, due to industry fluctuations such as customer demand plans and pricing mechanisms, the subsidiary Chengchang Technology's delivery progress and repayment pace were slow, and revenue and profits were under pressure. Revenue for the first three quarters was 0.1 billion yuan, down 41.22% year on year, and net profit was -0.032 billion yuan, down 160.19% year on year. However, at present, industry demand has recovered, and the pace of combined delivery and repayment has gradually improved. Q3 Chengchang Technology achieved revenue of 0.029 billion yuan, a year-on-year increase of 413.08%, and net profit further reduced losses. Losses of 0.007 billion yuan (Q1 and Q2 lost 0.015 billion yuan and 0.009 billion yuan respectively), Q3 net profit grew 40.72% year on year, and the year-on-year correction was achieved (Q1 and Q2 net profit growth rates were -222.09% and -117.90%, respectively) .

According to the guidelines of Chengchang Technology's Restricted Stock Incentive Plan, the revenue target for the full year 2024 is not less than 0.32 billion yuan.

According to the company's announcement, judging from the current order situation, industry demand has recovered. Chengchang Technology has successively received more orders for new projects and concentrated on delivery in the second half of the year, which will bring a certain revenue contribution. In addition, the company actively promotes guaranteed delivery and repayment, and has formulated special plans to ensure that annual performance targets are achieved.

Product/customer structure optimization, cost reduction and efficiency to improve profitability

In the first three quarters, the company's gross profit margin was 18.11%, down 0.72 pp year on year, down 4.62% year on year, down 1.74 pp; Q3 company's gross profit margin was 19.30%, up 0.27 ppp year on year, up 1.36 pp month on month, net profit margin 6.01%, down 0.81 pp year on year, and 2.44 pp month on month. The company's profitability improved markedly from month to month in the third quarter, mainly due to the adjustment and optimization of the customer structure and product categories, which improved gross margin. At the same time, the management improvement team set up by the company continued to control the expenses involved in various business flows to promote the improvement of operational efficiency and operating efficiency. Profitability is expected to continue to improve in the future with the continuous optimization of the company's customer & product structure and reasonable allocation control on the cost side.

Profit forecasting and valuation

The company expects revenue of 9.56, 12.09, and 14.96 billion yuan in 2024-2026, up 27.4%, 26.4%, and 23.8% year on year, and net profit to mother of 0.53, 0.7, 0.9 billion yuan, up 59.6%, and 28.4% year on year. The current market value is 20, 15, and 12 times PE corresponding to 24-26, maintaining a “buy” rating.

Risk warning

Macroeconomics affects demand; customer and business development falls short of expectations; gross margin falls short of expectations; cost control falls short of expectations, etc.