Jiang Bolong released three quarterly reports, achieving revenue of 4.229 billion yuan (yoy +47.28%, qoq -7.77%) and net profit to mother of 36.84 million yuan (yoy+0.25 billion yuan, qoq-0.25 billion yuan) in Q3 2024. The net profit loss returned to mother in 3Q24 was mainly due to consumer storage removing inventory, which led to a decline in gross margin. At the same time, consumer storage prices were under pressure, and preparations were made for the inventory price drop. We see that the company's high-end storage business represented by enterprise-grade storage, overseas businesses such as Lexar and Brazil's Zilia, and self-developed memory chips and storage master control chips are progressing smoothly, and are expected to bring new growth to the company in the future. Maintain a “buy” rating.

3Q24 review: Consumer storage inventory removal led to performance pressure. Overseas and high-end storage steadily pushed 3Q24 companies' net profit to loss, mainly due to: 1) Weak downstream consumer electronics markets, overstocking in the first half of the year, inventory removal rate was slow in the third quarter, demand for short-term storage and stocking slowed, and consumer storage prices were under pressure, which in turn led to a decline in gross margin of 17.3% (5.4pp); 2) 3Q24 asset impairment losses of 0.115 billion yuan, mainly due to inventory price decline. The company's 3Q24 inventory volume decreased by 11.5% month-on-month. The number of inventory turnover days dropped from 192 days in 2Q24 to 178 days, and operational efficiency gradually improved. In 3Q24, the company's overseas business, high-end storage, and self-developed chips progressed smoothly:

1) Lexar and Brazil's Zilia revenue continued to grow month-on-month. Lexar's revenue in the first three quarters was 2.526 billion yuan, surpassing 23 of the full year's revenue of 2.426 billion yuan, and Zilia's revenue in the first three quarters also exceeded 23 full year revenue; 2) High-end businesses such as enterprise-grade storage continued to grow sequentially; 3) Self-developed memory chips covered 4xnm and 2xnm, and the cumulative shipment volume far exceeded 50 million units.

4Q24 & 2025 outlook: Gross margin may be under pressure. I am optimistic that high-end storage and overseas business will bring new growth prospects 4Q24 and 2025. 1) Storage prices, especially consumer storage prices, will be under pressure (according to Trendforce forecasts, 4Q24 embedded storage contract prices fell 8-13% month-on-month, and consumer SSD contract prices fell 5-10% month-on-month), leading to a month-on-month decline in the company's gross margin; 2) New product development:

The company continues to launch products such as automotive-grade storage modules, small-capacity storage chips, and main control chips, which will bring new revenue growth points to the company; 4) Zilia is successfully integrated with Yuancheng Suzhou, and the company has entered local businesses such as Samsung and Lenovo through Zilia. Over the long term, the company has made positive progress in high-end storage businesses such as enterprise-level and industry-standard storage, and it is expected that the impact of wafer price fluctuations on gross margin will be smoothed out in the future.

A target price of 98.59 yuan was given, maintaining the “buy” rating

Considering the pressure on consumer storage products, we lowered our 2024-2026 revenue by 6.1%/13.2%/19.6%, while reducing gross margin by 2.9 pp/1.4pp/1.0pp, and net profit to mother to 0.49/0.5/0.45 billion yuan (previous value: 1.13/0.98/0.85 billion yuan). Considering the company's leading position in the module industry, the development layout of memory chip design, main control chip design, and package testing, 2.2 x 25 year PS (comparable consistent expected average of 1.9 x) was given, and the target price was 98.59 yuan (previous value: 90.03 yuan).

Maintain a “buy” rating.

Risk warning: Downstream demand recovery falls short of expectations, risk of storage price fluctuations.