3Q24 achieved revenue of 0.884 billion yuan (yoy: +12.34%, qoq: +7.20%), net profit of -0.148 billion yuan (loss increased 0.057 billion yuan year-on-year, increased 0.008 billion yuan month-on-month), and net profit after deducting non-return to mother of -0.175 billion yuan (loss increased 0.062 billion yuan year-on-year and 0.032 billion yuan month-on-month). The company's revenue in a single quarter reached a record high, mainly due to a sharp increase in sales of chip products. However, due to high gross margin chip customization services and low revenue confirmation from IP licensing services, 3Q24's comprehensive gross margin fell 2.81 pct month-on-month to 21.94%, and we expect the gross margin of chip products to remain basically stable. Furthermore, due to the increase in R&D expenses in the third quarter, the company's 3Q24 loss increased. We expect pan-AIOT industry demand in the fourth quarter to continue the current boom, and the smartphone SoC iteration progresses smoothly, and the company may usher in a nonlinear growth inflection point. The target price is 65 yuan, maintaining the “buy” rating.

3Q24 review: Demand for AIOT is picking up, and sales of the first 4G smartphone SoC climbed by business. Looking at the second half of the year, the company continued to expand its sales scale and increase market share in the cellular IoT market. The sales volume of cellular baseband/non-cellular baseband chips is expected to continue to grow month-on-month. In the smartphone sector, the first 4G mobile phone chip has been successfully shipped to the Latin American market. According to the company's announcement, at least 5 smartphones have now used this chip, and smart terminal markets such as smart watches, smart tablets, and children's learning machines are being installed simultaneously. The company expects total shipments of this chip to reach the level of one million by the end of the year. The company remained stable in terms of sales and management expenses. 3Q24 R&D expenses were affected by an increase in share payments and production costs, compounded by the entry of fresh graduates in the second half of the year. The year-on-month increase was 19.86%/11.16%, and the R&D cost rate increased 1.25pct to 35% month-on-month. In terms of inventory, as of the end of 3Q24, the company's inventory was 1.291 billion yuan, up 0.002 billion yuan from the end of the previous quarter, and the inventory turnover period was 192 days.

2025 outlook: The 8-core 4G smartphone platform is about to be launched, and the second growth curve is gradually clear. The company's product matrix is gradually improving around pan-AIOT and smartphone markets. We expect revenue to maintain a relatively rapid growth rate in 25/26:1) The 8-core 4G smartphone SoC project is progressing in an orderly manner, and it is expected that customer introduction will be completed before the end of the year, laying the foundation for mass production and marketing next year. The company's 5G smartphone SoC products are being developed and are expected to be relayed to 4G products in the future. 2) In the first half of the year, the company launched the first 5G Redcap chip, which successfully passed China Mobile's 5G REDCap chip certification test and entered the warehouse. Currently, it has cooperated with the first batch of customers, and we expect to gradually contribute to revenue.

3) The company's Cat.1 and Cat.4 products maintain a competitive advantage in the market, and accelerate expansion into the industrial Internet of Things and automotive fields in addition to traditional broadband MBB, smart payment, and sharing economy scenarios.

Investment advice: Target price of 65 yuan, maintaining a “buy” rating

We maintain the company's 24/25/26 revenue and profit forecast of 3.504/4.53/6.512 billion, and slightly reduce future gross profit margins considering competitive pressure on IoT products and changes in product structure. Considering the company's scarcity as a domestic baseband chip manufacturer, and the smartphone SoC has already been mass-produced and shipped, 6 times 25PS (comparable to the company's median expectations of 6x 25PS), a target price of 65 yuan, and a “buy” rating.

Risk warning: Product development falls short of expectations, market competition intensifies, and customer introduction falls short of expectations.