3Q24 results were slightly lower than our expectations

3Q24 Sirup achieved revenue of 0.342 billion yuan, up 69.8% year on year, up 11.4% month on month; net profit to mother was -0.033 billion yuan, down 0.035 billion yuan year on year, down 0.017 billion yuan from month to month. 3Q24's comprehensive gross profit margin was 51.6%, up 1.6 ppt year on year and 3.3 ppt month on month. We believe that 3Q24's slightly lower than expected results were mainly due to inventory depreciation of $0.035 billion, unconfirmed deferred income tax assets, and intense market competition.

Development trends

Market demand gradually improved at the bottom of the cycle, and the product structure continued to be optimized. The company's revenue for the first three quarters was 0.848 billion yuan, of which signal chain revenue was 0.71 billion yuan, up 9.4% year on year, and power management chip revenue was 0.14 billion yuan, down 13.9% year on year. According to the company announcement, benefiting from increased demand in downstream markets such as automobiles, optical modules, and servers and the release of new power management chip products, the company's revenue continued to improve, and gross margin increased quarterly. We believe that the company's layout in the high-growth downstream market has gradually optimized the product structure, and profitability is expected to continue to improve.

The company invests heavily in R&D, and the development progress of automotive chips and other products is progressing rapidly. According to the company announcement, 3Q24's R&D expenses were 0.136 billion yuan, a year-on-year increase of 43.8%, accounting for 39.7% of current revenue. According to the announcement, as of 1H24, the company has more than 160 automotive-grade chips, such as vehicle isolated drivers and voltage reference chips, which are widely deployed in various application scenarios such as smart cockpits, ADAS, car bodies, and power. The company's own vehicle chip test site has been put into operation. We believe that due to the strong demand for localized replacement of automotive chips, the continuous increase in vehicle regulation products will help improve the company's performance and profitability.

The company's acquisition of Chuangxinwei was completed, and the target is expected to bring revenue and profit growth. On October 23, the company issued an announcement on the completion of the transfer of the underlying assets. According to the announcement, the company acquired 100% of Chuangxin Micro's shares through the issuance of convertible bonds and cash payments totaling 1.06 billion yuan. The company's acquisition premium was 317.23%. According to the announcement, this transaction includes performance commitments. The target company must have a total net profit of not less than 0.22 billion yuan from FY2024 to FY2026; if the contract is not fulfilled, the undertaker will pay late fees to the company at a daily rate of 13,000 based on the amount overdue and uncompensated; in addition, the core personnel of the target company have signed competition terms. According to the announcement, Chuangxinwei's audited revenue in 2023 was 0.25 billion yuan and net profit was -0.004 billion yuan. We believe that this merger and acquisition will help the company increase its market share and help the company steadily improve its performance.

Profit forecasting and valuation

Considering the impact of market competition and expenses, our 2024 net profit forecast was lowered from 0.057 billion yuan to -0.056 billion yuan, the net profit for 2025 was reduced by 36% to 0.148 billion yuan, and the 2024 revenue was reduced by 5% to 1.26 billion yuan, maintaining the 2025 revenue forecast. Maintaining an outperforming industry rating, considering the company's strong growth, we maintain a target price of 108.69 yuan, using a 2027E forward P/E valuation, corresponding to the company's 2027E 35x P/E and 9% discount rate. The current stock price corresponds to 2027E 33.4x P/E, with 4.9% upside compared to the current stock price.

risks

Product development falls short of expectations; industry recovery falls short of expectations; mergers and acquisitions fall short of expectations.