Yutaiwei released its three-quarter report. 3Q24 achieved revenue of 0.111 billion yuan (yoy +97.69%, qoq +35.61%) and net profit to mother of -31.52 million yuan (yoy+25.54 million yuan, qoq+22.76 million yuan). The company achieved the highest quarterly revenue since its launch in 3Q24, with revenue rising quarterly in the 24th quarter, mainly due to the release of new products such as 2.5G PHY and the gradual recovery of industrial demand. We believe that the company has gradually broken out of the trough of downstream customers leaving inventory, and is optimistic that the company will continue to launch and release new products such as switching chips and 2.5G PHY, and contribute revenue from automotive products in the medium to long term. Maintain a “buy” rating.

3Q24 review: New products continue to be released, industrial demand is recovering

In 3Q24, the company continued to release new products and new products, accounting for a further increase compared to 1H24, and became the main source of revenue growth. The 4 new products introduced in 23 (2-port gigabit PHY, 8-port switching chip, 4+2 port switching chip, gigabit vehicle PHY) were superimposed on the 3 new products (single-port 2.5GPHY, 5-port switching chip, gigabit network card chip) introduced in '22. The 7 new 1H24 products accounted for 38% of total revenue, and the revenue share increased to more than 40% in the first three quarters. Among the 7 new products, benefiting from operators' home gateway product collection, single-port 2.5G PHY brought major incremental contributions. 1H24 had revenue of 38.709 million yuan (accounting for 25% of total revenue), and revenue of more than 80 million yuan in the first three quarters, accounting for more than 37% of revenue for the third quarter. In terms of old products: Demand for commercial-grade products is still weak, and competitive pressure is high; while industrial grade products with high gross margins have entered the inventory cycle, so although 2.5G PHY revenue share with low gross margin has increased, 3Q24 gross margin remains the same as 1H24, at 42.9%.

Outlook: 2.5G PHY and switching chips are being launched at an accelerated pace. We expect the company's 4Q24 revenue to continue to grow sequentially by the end of the year. In 2025, in addition to the recovery in demand for industrial grade products, the increase will mainly come from several new products: 1) Switch chips: The company's existing switching chip products will continue to be released in the fields of households, small business networks, security, etc. In addition, 16-port and 24-port Ethernet switching chips will also launch mass production samples at the end of 24, driving the company to enter the enterprise network switching market; 2) 2.5G PHY chips: In 2024, single-port 2.5G PHY chips will bring a significant increase in the company's revenue. The four-port 2.5G PHY will also launch mass-produced samples at the end of '24, which can replace the 10G rate in some scenarios and further open up market space. In the medium to long term, automotive products such as automotive Ethernet switching chips, in-vehicle high-speed video transmission chips, and automotive gateway chips are expected to start contributing significant revenue in '26.

Investment advice: The target price is 101.15 yuan. Maintaining the “buy” rating, the company's various automotive products will contribute significant revenue in 26 years. Therefore, we will maintain 24-25 revenue and increase revenue for 26. We expect revenue of 0.4/0.65/1.19 billion for 24-26. The company maintains a strong R&D strategy, but considering gradually entering the R&D harvest period and lowering the 24-26 R&D cost rate, the net profit for 24-26 is expected to be -0.21/-0.17/0.03 billion yuan (previous value: -0.26/-0.24/-0.11 billion yuan), and the company will reverse losses in 26 years. Comparable to the 25-year Wind, the average PS was expected to be 10.3 times. Considering the scarcity of the company's PHY chips in domestic listed companies and the potential for growth in the switching chip and automotive fields, the target price was 101.15 yuan (previous value: 70.57 yuan) to maintain the “purchase”.

Risk warning: Risk of difficult market competition; risk of product development progress falling short of expectations; risk of high customer concentration; risk of loss of core technical personnel.