Incident: 1-3Q24 achieved operating income of 53.161 billion yuan (YoY +19.70%), net profit attributable to mother of 0.415 billion yuan (YoY -80.26%), after deducting non-attributable net profit of 0.071 billion yuan (YoY -96.40%).

Looking at the split, 3Q24 achieved revenue of 19.571 billion yuan (YoY +28.71%); net profit to mother of 0.274 billion yuan (YoY -67.69%), which is a significant improvement compared to the second quarter, which changed from loss to profit; net profit without deduction of 0.2 billion yuan (YoY -75.15%).

Anshi Semiconductor: Revenue from the automotive, industrial and power sectors remained steady. The semiconductor business achieved revenue of 3.832 billion yuan in 3Q24, an increase of 5.86% month-on-month, and gross margin of business of 40.5%, an increase of 2.8 percentage points over the previous year, an increase of 1.8 percentage points over the previous year, and achieved net profit of 0.666 billion yuan, an increase of 18.92% over the previous month.

In the third quarter of 2024, the company's semiconductor business maintained steady revenue in the automotive, industrial and power sectors, while revenue from other consumer electronics such as mobile and wearable devices, computer equipment, and consumer sectors recovered rapidly from month to month. In 2024, the company's semiconductor business launched a variety of new products to meet the growing market demand for high-performance, high-power products, enriched the medium- and low-voltage MOS and protection device product portfolio, accelerated the launch of three and a half generation products such as SiCMOSFETs, and continued to expand materials in the field of analog products, which strongly supported the application of the company's products in consumer electronics, AI data centers, new photovoltaic energy, and new energy vehicles.

Product integration: optimize business management and lay out new future developments. The 3Q24 product integration business achieved revenue of 15.73 billion yuan, a year-on-year increase of 45.58%, a month-on-month increase of 14.79%, gross margin of 3.8%, an increase of 1.8 percentage points over the previous month, and a net loss of 0.357 billion yuan (including interest expenses on convertible bonds of 0.108 billion yuan), improving month-on-month. Excluding the financial expenses of convertible bonds and the impact of exchange losses due to the decline in the US dollar exchange rate in the third quarter, the product integration business situation improved markedly and losses were drastically reduced in the third quarter. The effects of the company's many measures to improve the operating quality of the product integration business were further reflected in the third quarter: (1) seizing incremental market opportunities, serving customers with high ASP products, smooth expansion of new customer projects and new business, mass production and shipment of some new projects began, and the product integration business achieved significant year-on-year and month-on-month growth in the third quarter of 2024; (2) win-win cooperation to increase product gross profit margin, and the product integration business actively optimizes businesses related to upstream and downstream partners, such as the entry into force of business terms with customers and the introduction of new supplier partners; (3) strengthening internal internal business The cost ratio of the three major expenses of management, optimization of operational efficiency, cost control, and product integration business declined year-on-year in the first three quarters of 2024.

Profit forecasts and investment recommendations. We believe that the company has formed a development pattern of ODM and semiconductor two-wheel drive. Anshi's semiconductor industry has a stable position. Combined with future capacity expansion and steady growth, the product integration business is expected to experience a rebound in performance after the new product cultivation period. We expect the company to achieve EPS of 0.87, 1.88 and 2.44 yuan respectively in 2024-2026. We will give the 2024 PE50-57X, which corresponds to a reasonable price range of 43.50-49.59 yuan/share, giving it a “superior to the market” rating.

Risk warning. Demand in the smartphone market fell short of expectations, and competition in the ODM industry intensified.