Matters:

The company announced its quarterly report for the first three quarters of 2024. In the first three quarters, the company achieved revenue of 0.848 billion yuan, a year-on-year increase of 4.31%; net loss of 0.099 billion yuan, which turned into a year-on-year loss (profit of 0.016 billion yuan for the same period last year); after deducting non-net loss of 0.169 billion yuan, loss of 0.049 billion yuan in the same period last year, and the loss increased.

Ping An's point of view:

Revenue increased rapidly during the Q3 quarter, but factors such as inventory impairment lowered performance. Benefiting from increased demand in market segments such as optical modules, new energy, and servers, and the gradual release of new signal chain and power management chip products in 2024Q3, the company achieved revenue of 0.342 billion yuan, an increase of 69.76% year-on-year and 11.37% month-on-month. Among them, Q3 single-quarter signal chain chips achieved sales revenue of 0.291 billion yuan, a year-on-year increase of 73.25%; power management chips achieved sales revenue of 49.8419 million yuan, an increase of 51.10% year-on-year. In 2024Q3, the company achieved a comprehensive gross profit margin of 51.60%, an increase of 1.58 percentage points over the previous year, and an increase of 3.32 percentage points over the previous year. In the third quarter of 2024, the company achieved net profit of -33.0877 million yuan. The company experienced relatively large losses, mainly affected by asset impairment factors. Q3 asset impairment losses were about 38.87 million yuan, a significant increase over the same period last year. Earlier, due to the implementation of the relevant production capacity agreement, a certain amount of inventory wafers was formed. Currently, the relevant agreement has ended. The wafer inventory is being consumed normally. In the third quarter, inventory price reduction preparations were increased in accordance with the company's principle of calculating price reductions.

Revenue growth resumed in the first three quarters, but profit pressure still exists. In the first three quarters of 2024, the company achieved operating income of 0.848 billion yuan, an increase of 4.31% over the previous year; realized net profit to mother was -0.099 billion yuan, and net profit after deducting non-return to mother was -0.169 billion yuan. Among them, signal chain chip products achieved revenue of 0.71 billion yuan, a year-on-year increase of 9.37%; power management chip products achieved revenue of 0.138 billion yuan, a year-on-year decrease of 13.91%. In the first three quarters of 2024, the company's comprehensive gross margin was 49.46%, a decrease of 4.12 percentage points over the same period last year. The comprehensive gross margin declined, mainly due to lower prices and restructuring of shipped products. In the first three quarters of 2024, the company invested 0.394 billion yuan in R&D, up 4.34% year on year, accounting for 46.43% of revenue. The company's R&D investment has always been at a high level, mainly due to the company's continuous increase in R&D and technical investment in products such as power supplies, interfaces, MCUs, data converters, etc., as well as automotive-grade products, and a significant increase in R&D personnel.

Focus on the management of analog and digital-analog hybrid product lines, and enhance growth momentum through endogenous and epitaxial mergers and acquisitions. In terms of outreach, it mainly focuses on strengthening the layout in fields other than industry and communications, highlighting horizontal business expansion and complementarity between markets and customers. In the third quarter of 2024, the company completed the asset transfer to acquire 100% of Shenzhen Chuangxinwei's shares, and Chuangxinwei has become a wholly-owned subsidiary of the company. Chuangxin Micro's main business is consumer lithium battery protection and power management chips, which complement Sirup's consumer products and markets. On the one hand, Chuangxin Micro complements the main circuit of Shirip industry and communications in product clients, mainly in the fields of smartphones, wearables, home appliances, and power supplies; on the other hand, Chuangxin Micro and Sirip can be reused to a certain extent in terms of R&D, channels, and supply.

Actively expand the server and vehicle specifications market, and open up new growth space. The company's products used in the server market mainly include general products such as power acquisition AFE, I2C interface, operation amplifier, LDO, etc., which can be widely used in traditional servers and AI servers, and customers cover most leading domestic enterprises. The company is increasing investment in products around customer needs, continuously enriching product categories, and building differentiated competitive barriers through medium- to long-term efforts. For the server market, the TPC502200 was newly launched, which supports 12-bit 8-channel SAR digital-to-analog conversion with an I2C interface; for the automotive market, the company recently launched the TPV710Q, a small-sized, low-power, automotive-grade watchdog timer chip, which is used in automotive cockpits, T-Box, BMS, etc.

Investment proposal: The company is a leading analog chip design enterprise in China. Its main products are signal chain chips, power management chips and embedded processors. It is widely used in downstream fields such as new energy vehicles, industrial automation, communication equipment, medical devices, smart homes, etc., and is currently expanding into new fields such as servers. Along with the recovery of the semiconductor industry, the company's revenue has also resumed growth, but due to the large scale of R&D and market investment, the company is still in a state of loss. In line with the company's latest financial report, we lowered our profit expectations. In 2024-2026, the company's EPS is expected to be 0.46 yuan (previous value was 1.43 yuan), 1.70 yuan (previous value was 2.88 yuan), and 2.73 yuan (previous value was 4.53 yuan), respectively. The PE corresponding to the closing price on November 1 is 228.9X, 61.7X, and 38.4X, respectively. Although short-term performance is under pressure, the company will continue to improve with the merger and acquisition business, R&D and market-side focus, and the continued recovery of the subsequent market. Maintain a “Recommended” rating.

Risk warning: (1) the risk of declining industry prosperity; (2) the risk of international trade friction; (3) the risk of insufficient ability to continuously innovate in technology.