3Q24 achieved revenue of 0.179 billion yuan (yoy: -5.14%, qoq: +1.89%), net loss to mother of 0.036 billion yuan (year-on-year loss reduced by 0.021 billion yuan, month-on-month increase by 0.03 billion yuan), and net loss of 0.046 billion yuan (year-on-year loss decreased by 0.016 billion yuan, year-on-month loss decreased by 0.032 billion yuan).

In the first half of the year, due to inventory losses from telecommunications customers, the company's 1H24 revenue fell 21.48% year on year. In the second half of the year, as channel inventory pressure gradually eased, and the expansion in industrial control/consumer markets was relatively smooth. The year-on-year decline in the company's 3Q24 revenue narrowed and achieved a slight increase from month to month. However, as demand for the company's high-end product Phoenix series (mainly for telecommunications customers) is still weak, gross margin has declined for three consecutive quarters.

The company increased cost control in '24, and losses in 3Q24 decreased year-on-year, and losses also narrowed month-on-month due to asset depreciation. We believe that the current demand for industrial control and consumer demand has gradually recovered, and that demand for delivery from telecommunications customers is expected to recover in 2025. As the company's FPGA product matrix continues to improve, it is expected that it will maintain a leading position under the domestic substitution trend and maintain a “buy” rating in the future.

3Q24 review: Demand in the display/industrial control/consumer sector is growing, and inventory levels are still high. Although demand in the FPGA industry is relatively lackluster this year, the company is still actively enriching product numbers. 3Q24 continues to expand and introduce new customers in the display, industrial control, consumer and other markets, and revenue has improved month-on-month, but due to the large share of the communications market in the FPGA industry, we expect to wait 1-2 quarters for the full recovery of the industry. In terms of gross margin, 3Q24 gross profit margin was 26.93% (yoy: -8.93pct, qoq:

-1.97pct). The sharp year-on-year decline was mainly due to the decline in revenue share of Phoenix series products. It is expected to recover one after another in 2025 as demand in the communications industry picks up. In terms of expenses, 3Q24's R&D expenses were 0.093 billion yuan, which is basically the same as the previous quarter. The R&D expenses rate decreased by 1.48 pcts month-on-month to 52.12%.

In terms of inventory, as of the end of 3Q24, the company's inventory was 0.59 billion yuan, a decrease of 0.017 billion yuan from the end of the previous quarter. The number of inventory turnover days dropped to 533 days. Currently, inventory is still at a high level.

2025 outlook: Demand in the communications industry is expected to recover. New products help develop new markets. We expect that after about a year of inventory digestion, telecom customer inventory will gradually return to normal levels, and the company will continue to improve the Phoenix series products to better meet the needs of communications customers. Furthermore, for long-tail markets such as industrial control and consumer, the company launched a new PH1P high-efficiency field programmable gate array (FPGA) product, which can be used in fields such as machine vision and LED display. In response to the FPSoC route, the company launched low-power FPSoC chips and high-performance FPSoC chips, and the customer response was quite positive.

Investment advice: “buy” rating, target price 32.2 yuan

Considering that it will still take some time for downstream demand to recover, and the decline in gross margin exceeds our previous expectations, we lowered our 24/25/26 revenue forecast to 0.696/0.86/1.091 billion yuan (previous value:

0.759/1.038/1.434 billion yuan), the estimated net profit to mother is -0.218/-0.191/-0.132 billion yuan, respectively. As a scarce domestic FPGA supplier, the company is expected to maintain its leading position in the next round of the upward cycle, giving 15 x 25 PS (comparable to the company Wind's consistent expectation of 14 x 25 PS), with a target price of 32.2 yuan, maintaining a “buy” rating.

Risk warning: Market competition intensifies, R&D progress falls short of expectations, and market expansion falls short of expectations.