Star Semiconductor 3Q24 achieved revenue of 0.88 billion yuan (qoq +21.0%/yoy -5.3%) and net profit of 0.15 billion yuan (qoq +32.5% /yoy -34.9%). The company's performance improved significantly compared to Q2, mainly due to (1) the recovery in demand in the new energy sector: inventory of photovoltaic products was gradually digested in the first half of the year, and orders for new modules contributed to revenue growth; (2) price declines in the automotive sector narrowed, while product structures such as high-power modules were shipped, bringing about good improvements, and gross margin of 32.0% (+0.78pp) in 3Q24. We are optimistic about the company's leading technology and shipping volume advantages in the IGBT field. Demand for PV, industrial control and other terminals is expected to recover next year, and with the continuous expansion of new products, it will bring improvements in revenue and profits. Maintain a buy rating.

3Q24 review: Q3 revenue improved month-on-month; inventory turnover days declined, Star Semiconductor's 3Q24 revenue was 0.882 billion yuan (+21.0% month-on-month), improving demand growth mainly from the downstream automotive and photovoltaic sectors. Among them, the automobile market ushered in hot sales in September. At the same time, inventory in the photovoltaic sector was gradually digested, and new orders for photovoltaic modules began to contribute to revenue growth. In terms of gross margin, benefiting from the narrowing of price declines in the automotive sector and the release of high-power module products, the company achieved a gross profit margin of 32.0% in 3Q24, +0.78pp. The number of inventory turnover days was 213 days, the first decline since this year. In addition, the total number of projects under construction by the company reached 3.36 billion yuan, and is concerned about subsequent depreciation.

4Q24&1H25 outlook: Domestic NEV industry demand is strong, photovoltaic and industrial control sectors are expected to pick up

Looking ahead to 4Q24 & 1H25, we believe: 1) Demand in the domestic NEV sector continues to rise: after some fuel vehicles withdraw from price competition, the NEV price war is expected to slow down, 4Q24 NEV sales are expected to drive the company to increase shipments of IGBT modules and increase the pace of launching the company's self-developed SiC modules in 25 years; 2) The photovoltaic, industrial control sector is expected to recover, and bring new growth in the field of home appliances: Q4 With further macroeconomic recovery, revenue in the industrial control sector is expected to grow sequentially; PV terminal inventory removal is expected to end and bring new orders Contribution; The company has also begun to cooperate with leading customers in new fields such as commercial air conditioning, and is expected to gradually contribute new increases.

Maintaining a “buy” rating, the target price is 108.45 yuan

Considering the slow progress of PV inventory removal in the NEV sector since this year, we lowered our 24/25/26E revenue to 3.49/4.49/5.52 billion yuan (previous value 3.81/4.87/5.97 billion yuan); we believe that the gradual rise in SiC production capacity and the gradual recovery in demand in photovoltaics, industrial control and other fields are expected to offset some of the price cuts and depreciation. We maintain the 24/25/26E gross margin forecast of 32/32.5/33%. Finally, 24/25/26E was given an estimated net profit of 0.63/0.81/1.04 billion yuan (previous value 0.68/0.88/1.12 billion yuan). A 25-year 32X PE (comparable company average value, taking into account competitive pressure brought about by industry-side supply expansion, increased company depreciation, etc.) was given, and the target price was 108.45 yuan (previous value of 90.94 yuan) to maintain the purchase rating.

Risk warning: SiC production lines fall short of expectations, NEV sales fall short of expectations, and IGBT competition intensifies.