Net profit or pressure in 2025, procyclical recovery or phased boost valuation, maintain the “purchase” rating and raise the 2024 net profit forecast from 0.09 billion US dollars to 0.11 billion US dollars, considering the 2024 increase in foreign exchange earnings and government subsidies. Considering that the production capacity of the company's 12 inch 9 factory begins to be released in 2025, the company's room for price increases may be limited. At the same time, production capacity release corresponds to additional depreciation and cost pressure. We will change the 2025-2026 net profit to mother from 0.16/0.25 The billion dollar was lowered to 0.09/0.12 billion, corresponding year-on-year growth rates of -62%/-14%/28%, respectively. The current share price of HKD corresponds to 0.7/0.7/0.7x PB 2024-2026. Considering that PB valuations are still low, the procyclical recovery in downstream demand is expected to gradually boost valuations and maintain the “buy” rating.

2024Q3's revenue and net profit were better than market expectations. The gross margin was slightly lower than market expectations of the 2024Q3 revenue of 0.526 billion US dollars, up 10% month-on-month, slightly exceeding the 0.5-0.52 billion US dollar range upper limit of the company's guideline (vs Bloomberg's consensus estimate of 0.52 billion US dollars), mainly driven by an 8.5% month-on-month increase in shipments, which we believe mainly reflects the increase in the price of 12-inch products. The 2024Q3 gross profit margin of 12.2% slightly exceeded the company's guidance range of 10%-12%, slightly lower than market expectations (Bloomberg's consensus estimate of 13.1%), and net profit to mother was 0.045 billion US dollars, higher than Bloomberg's agreed forecast of 0.019 billion US dollars, mainly due to rising foreign currency exchange earnings and government subsidies.

The 2024Q4 performance guide fell short of expectations, due to weak customer momentum in the 2024Q4 revenue range of 0.53-0.54 billion US dollars. The median value corresponds to a month-on-month growth rate of 2% (lower than Bloomberg's agreed expectation of 0.56 billion US dollars). We think it is mainly due to the delay in 2024Q4 shipments; we think it is mainly due to the delay in 2024Q4 shipments; the reference revenue guide is flat or slightly declining, mainly due to the seasonal low season in Q4. The company guides the 2024Q4 gross profit margin of 11%-13% (lower than Bloomberg's agreed gross profit margin of 16%), which we believe is mainly due to the still price pressure on the 8-inch production line. Looking at downstream demand, the company's core power, and high voltage platforms, face the continuation of the overall oversupply pattern in the industry, and the company will accelerate the layout of the new energy industrial control field to achieve relatively better performance. Stable demand for BCD and CIS mainly benefits from product structure upgrades for AI servers and CIS major customers, respectively. There is still room for upward recovery in Nor Flash, MCU and card demand in 2025.

Risk warning: The power pattern deteriorates, production capacity expansion falls short of expectations, and the risk of product price reduction.