Incident: The company released its three-quarter report for 2024. In the first three quarters of 2024, the company achieved revenue of 17.081 billion yuan, +7.38% year over year; realized net profit of 0.553 billion yuan to mother, reversed the year-on-year loss; deducted non-net profit of 0.541 billion yuan, reversing the year-on-year loss. Among them, in Q3 2024, the company achieved revenue of 6.001 billion yuan, +0.04% year on month; realized net profit of 0.23 billion yuan, +85.32% year on year, +2.53% month on month; realized deducted non-net profit of 0.225 billion yuan, +121.20% year on year and +1.35% month on month.

The market is picking up, and all businesses are growing steadily, and profitability has rebounded markedly: the global semiconductor industry will return to a growth path in 2024. In the first three quarters of 2024, the company seized the recovery opportunities of the mobile phone and some consumer electronics markets, and achieved continuous growth in revenue. In terms of profitability, in the first three quarters of 2024, the company's gross margin was 14.33%, +3.05 pcts; the net profit margin was 3.66%, +4.08pcts year on year. The main reason for the significant recovery in gross margin and net margin was the increase in the company's capacity utilization rate and revenue growth increased markedly. At the same time, the company strengthened management and cost control, and overall efficiency improved significantly. In terms of expenses, the company's sales/management/R&D/finance expense ratios for the first three quarters of 2024 were 0.30%/2.14%/5.60%/2.20%, respectively. The year-on-year changes were +0.01/-0.15/+0.18/-2.44pcts, respectively. The financial expenses rate and absolute value both declined sharply, and the main cause was a sharp reduction in exchange losses.

Increased investment to fully deploy production capacity, and the two major advanced packaging and testing bases are progressing smoothly: in order to respond positively to the strong demand in the AI chip-driven advanced packaging market, the company increased investment to fully deploy advanced packaging production capacity. 1) The first equipment of the Tongfu Tongke Memory Phase II project has been officially installed. It has achieved phased results in the construction of a memory sealing and testing base. It will form a leading level of memory sealing and testing at the technical level and meet growing market demand at the production capacity level. The second phase of the Memory project added a purification workshop area of 8,000 square meters. After commissioning, it can provide an overall monthly production capacity of 0.15 million wafers. At the same time, 0.16 billion yuan of equipment investment was added, mainly the key equipment required for mass production of high-end products such as embedded FCCSP and uPOP, which can better meet the localization needs of high-end memory products in the fields of mobile phones, solid state drives, and servers. 2) After completion, the Tongfu Tongda Advanced Packaging and Testing Base project will mainly be involved in communication, memory, computing power and other application fields, focusing on integrated circuit packaging products encouraged and supported by the country, such as multi-layer stacking, flip-up, wick-level, and panel-level packaging. Furthermore, on October 10, 2024, the Tongfu Microelectronics Advanced Packaging and Testing Project also officially started in the Suxitong Technology Industrial Park. After completion, the project will introduce world-class sealing and testing technology and equipment. Future products will be widely used in various fields such as high-performance computing, artificial intelligence, and network communication.

Advanced packaging production capacity continues to be tight, and demand for AI-driven high-end packaging and testing is strong: 24H1, the AI chip market is growing rapidly. According to Gartner's forecast, the server AI chip market will reach 21 billion US dollars in 2024, and is expected to reach 33 billion US dollars by 2028, with a CAGR of 12%. The company's customer AMD's data center business grew beyond expectations, thanks to strong demand for Instinct GPUs and EPYC processors from cloud customers and enterprise customers. Among them, the MI300 GPU exceeded expectations by 1 billion US dollars in a single quarter, and AMD's data center GPU revenue this year was 4.5 billion US dollars (previous value was 4 billion US dollars). With the sharp rise in demand for AI chips, advanced packaging production capacity has become one of the bottlenecks in AI chip shipments. TSMC, Sun Moon Light, and Anjiao all indicate that advanced packaging production capacity is tight and demand for related orders is strong. In the advanced packaging market, the company continues to develop large-scale, high-computing power products in the server and client markets. Relying on years of cooperation and first-mover advantage with leading companies in the industry such as AMD, the company's high-performance packaging business maintained steady growth in the first half of the year based on the continuous growth in demand for high-end processors and AI chips. At the same time, as opportunities for innovation in the AI+ industry increase, the industrialization of artificial intelligence has entered a new stage. The company is actively expanding production at the Penang plant to meet customer needs in all aspects in line with the AI development opportunity requirements of leading customers such as AMD.

Maintaining a “buy” rating: We are optimistic that the semiconductor industry will return to a growth trajectory. The AI revolution will catalyze accelerated growth in advanced packaging. Advanced packaging technology will maintain a rapid growth trend in the next few years. The company is expected to continue to benefit from the rapid growth in the AI chip market, driving the increase in demand for advanced packaging, and the company's performance is expected to continue to grow. Considering that the global semiconductor industry is in a moderate recovery stage and has yet to fully recover, based on the company's current profit performance, and adjusting the company's profit forecast for 2024-2025, we expect the company's net profit to be 0.805 billion yuan, 1.21 billion yuan, and 1.578 billion yuan respectively. EPS is 0.53 yuan, 0.80 yuan, and 1.04 yuan respectively, and the corresponding PE is 59X, 39X, and 30X, respectively.

Risk warning: risk of industry and market fluctuations, new product expansion falling short of expectations, risk of changes in raw material prices, risk of international trade.