Incident: The company released its 2024 three-quarter report. In the first three quarters of 2024, the company achieved revenue of 0.467 billion yuan, +24.05% year over year; realized net profit to mother of 0.071 billion yuan, +51.12% year over year; realized deducted non-net profit of 0.048 billion yuan, +31.23% year over year. Among them, Q3 achieved revenue of 0.186 billion yuan, +18.66% YoY, +14.90%; realized net profit to mother 0.03 billion yuan, +34.87% YoY, -7.51% month-on-month; realized deducted non-net profit of 0.025 billion yuan, +20.21% YoY and +39.00% month-on-month.

The share of high-margin products increased, and gross margin improved dramatically: The company's revenue grew rapidly in the first three quarters of 2024. The main reason was that the company closely grasped market demand and technology trends, adopted an active sales strategy, and sales increased significantly over the same period last year. The company's gross margin for the first three quarters of 2024 was 47.13%, +4.09pct year on year; net margin was 15.20%, +2.73 pct year on year. 24Q3 gross margin was 48.16%, +2.68pct year on year, +0.94pct month-on-month; net margin was 16.10%, +1.94pct yoy, -3.90pct month-on-month. Profitability continues to improve, mainly due to continuous optimization of product structure and customer structure, and continuous increase in sales share of high-margin products. In terms of expenses, sales/management/R&D/finance expenses for the first three quarters of 2024 were 2.62%/6.48%/34.20%/-5.59%, respectively, -0.66/0.00/+2.48/+3.13pct. The increase in the R&D cost rate is mainly due to the company's increased R&D investment, R&D remuneration, and R&D engineering costs in order to meet customers' demand for low power consumption and high computing power for end-side equipment.

Product lines have blossomed, and end-side AI chip revenue has increased multiples: The company's fastest growth rate in the first three quarters of 2024 were Bluetooth speaker SoC chips, low-latency, high-sound wireless audio SoC chips, and end-side AI processor chip products. Among them: 1) In the Bluetooth speaker market, the company continued to increase the penetration rate of international first-tier brands represented by Harman, SONY, etc., and achieved steady growth. The company adopted a major customer strategy, focusing on resources to continuously increase the market share of brand customers. The medium-term goal is to achieve a multiplier increase on the current basis; 2) in the low-latency, high-sound wireless audio chip market, the company grasped the trend of wired to wireless in the wireless home theater audio system, radio sports headsets, and wireless microphone markets, and achieved significant year-on-year growth; 3) In the end-side AI processor market, the company highlights the characteristics of providing large computing power with low power consumption to provide customers with excellent solutions. Product shipments have increased exponentially, and sales revenue have increased multiples year over year.

The performance of end-side AI products has improved dramatically, and we are optimistic that new products will continue to release performance flexibility: The company has officially released the latest generation of end-side AI audio chips based on SRAM, using a CPU+DSP+NPU three-core heterogeneous architecture, which can provide higher computing power at lower power consumption, and at the same time have lower latency and enhanced security, which will play an important role in audio applications and end-side AI. The product includes three chip series: the first series is ATS323X, aimed at low-latency private wireless audio; the second series is ATS286X, aimed at Bluetooth AI audio; and the third series is ATS362X, aimed at AI DSP processors. At present, some customers are close to mass production of terminal products. The company's three-core AI-based heterogeneous chip uses a more advanced process. Compared with the company's existing products, it can provide tens of times to hundreds of times more computing power at the current level of power consumption. Compared with mainstream NPU products on the market, the energy efficiency ratio can be increased by at least three times. Compared with mainstream DSP products, the power consumption can be reduced by nearly 90%. Therefore, there will also be a very obvious increase in price compared to the company's previous generation products, which is expected to contribute to revenue next year.

Maintaining a “buy” rating: The company continues to optimize its product structure. As the share of high-margin products increases, profitability is expected to continue to improve. The company firmly implements the big customer strategy and continues to increase the penetration rate of domestic and foreign first-tier brands. At the same time, continuously expanding new customers and new markets, continuously optimizing and upgrading existing product lines, and iterating more advanced chip products, it also injects momentum into the company's future business development. In terms of growth, the company continues to lay out high-growth new products, and high-end AI audio chips based on SRAM memory calculations are expected to continue to unleash performance elasticity. It is estimated that the company's net profit from 2024 to 2026 will be 0.1 billion yuan, 0.125 billion yuan, and 0.16 billion yuan, EPS is 0.69 yuan, 0.86 yuan, and 1.09 yuan respectively, and corresponding PE is 48X, 39X, and 30X respectively.

Risk warning: risk of macroeconomic fluctuations, downstream demand falling short of expectations, risk of technology development and iterative upgrading, and increased market competition.