Incident: The company released its 2024 three-quarter report. In the first three quarters of 2024, the company achieved revenue of 10.531 billion yuan, +30.52% year over year; realized net profit of 0.357 billion yuan, +330.83% year over year; realized deducted non-net profit of 0.048 billion yuan, +116.57% year over year. Among them, in Q3 2024, the company achieved revenue of 3.813 billion yuan, +27.98% YoY, +5.56%; realized net profit of 0.134 billion yuan, +571.76% YoY, -18.95% month-on-month; realized deducted non-net profit of 0.084 billion yuan, +184.91% YoY and +104.68% month-on-month.

Orders and product sales increased year-on-year, and overall performance continued to improve: in the first three quarters of 2024, the integrated circuit market gradually recovered, and the company's orders and product sales increased, leading to a steady year-on-year increase in the company's revenue. In terms of profitability, the company's gross margin for the first three quarters of 2024 was 12.29%, +3.77pcts year on year; net margin was 3.53%, +2.33pcts year on year. The main reason for the recovery in gross margin is that since 2024, the industry has shown signs of recovery, and the company's business conditions have continued to improve. In terms of expenses, the company's sales, management, R&D and financial expense ratios for the first three quarters of 2024 were 0.94%/4.54%/6.37%/1.03%, respectively. The year-on-year changes were 0/-0.60/+0.37pct, respectively. The main cause of the increase in R&D expenses and absolute values was the main cause of the company's continuous increase in R&D investment in advanced packaging testing; the financial cost ratio and absolute value increased the main cause interest expenses year-on-year.

Continue to invest in advanced packaging production capacity, and upgrade production lines to high-end manufacturing: In order to meet the hot market demand for advanced packaging, the company actively invests resources to lay out advanced packaging production capacity. On September 22 this year, Huatian Nanjing Integrated Circuit Advanced Packaging and Testing Industrial Base Phase II project laid the foundation stone in Pukou District. The project will invest 10 billion yuan to introduce high-end production equipment and build an integrated circuit packaging testing production line with international advanced packaging standards. It is expected that all construction will be completed in 2028, and the products will be widely used in storage, radio frequency, computing power, autonomous driving, etc., and the company is expected to achieve an annual output value of 6 billion yuan after delivery. On October 11 of this year, construction of an automotive electronics production line upgrade project with an investment of 4.8 billion yuan began. After completion, it is expected to increase annual sales revenue of 2.159 billion yuan. In terms of automotive electronics-related technology, Tianshui Huatian continues to develop advanced packaging technology and process research and promote FOPLP packaging process development and 2.5D process verification. It has passed automotive-grade AECQ100 Grade0 packaging process verification, and has 3D NAND Flash 32-layer ultra-thin chip stacking and packaging capabilities. Indium heat dissipation FCBGA packaging process, ultra-thin chip silicon through-hole TCB bonding technology, HBPOP packaging technology development, etc.

The semiconductor market is back on a growth trajectory, and R&D investment continues to respond to market demand: Since 2024, the global semiconductor market has shown a recovery trend. According to data from the American Semiconductor Industry Association (SIA), the global semiconductor market continued to grow in the third quarter of 2024. Global semiconductor sales in the third quarter were 166 billion US dollars, up 23.2% year on year and 10.7% month on month. Among them, global sales in September 2024 were $55.3 billion, an increase of 4.1% compared to $53.1 billion in August 2024. Market applications such as consumer electronics, rapidly developing computers, and network communications have become the main application areas for integrated circuits in China. With the upgrading of consumer electronics such as smartphones and tablets, as well as the transformation and upgrading of traditional industries, application scenarios such as automotive electronics, security, and artificial intelligence will continue to drive strong demand for integrated circuits. To this end, the company attaches importance to integrated circuit packaging technology and product innovation, continuously increases investment in R&D, and determines that advanced packaging testing is the direction of R&D development. In recent years, the company's R&D investment has remained above 5% of revenue. 24H1 invested 0.423 billion yuan in R&D, accounting for 6.29% of revenue. Currently, the company's key research and development includes advanced packaging technology and packaging products such as Fan-Out, FOPLP, automotive electronics, and memory. The company's continuous investment in R&D, combined with strong IC market demand, will enable the company to better respond to market demand in the future.

Maintaining the “gain” rating: Driven by application trends such as application side recovery, artificial intelligence, and high-performance computing in the downstream memory market, we are optimistic that demand in the advanced packaging field will continue to be strong. In the future, as the scale of the company's advanced packaging industry continues to expand, and automotive electronic packaging products are mass-produced and sales promoted in an orderly manner, we are optimistic that advanced packaging production capacity will continue to be tight. In the future, the company's products will meet market demand and bring more growth to the company's performance. Based on the company's revenue performance for the first three quarters of 2024, the company's annual revenue forecast was raised. However, considering that the company continues to invest in advanced packaging production capacity to meet market demand, R&D expenses and financial expenses have a large impact on the company's profit side, we adjusted the company's profit forecast for 2024-2026. The company's net profit to mother for 2024-2026 is 0.555/0.955/1.29 billion yuan, corresponding EPS is 0.17/0.30/0.40 yuan, corresponding to PE 71/31 times.

Risk warning: Risk of rising product costs, risk of failure in technology development and new product development, risk of semiconductor industry prosperity falling short of expectations, and production capacity expansion falling short of expected risk.