Revenue for the first three quarters increased 78% year over year.

1) 24Q1-Q3: Revenue of 1.37 billion yuan, yoy +78%, net profit of 0.23 billion yuan, net profit of 0.23 billion yuan after deducting non-0.23 billion yuan, gross profit margin 33%, yoy+11pcts, net interest rate 16%, yoy+30pcts. Benefiting from the recovery in the consumer electronics boom such as IOT, wearables, mobile phones, and smart homes, the company continued to seize share, and the company's revenue increased year-on-year in the first three quarters.

2) 24Q3: Revenue 0.47 billion yuan, yoy +58%, qoq -4%, net profit to mother 0.089 billion yuan, qoq +3%, net profit margin of 33%, yoy+7pcts, qoq-3pcts, net profit margin 19%, yoy+27pcts, qoq+1pcts. Non-recurring profit and loss of 0.013 billion yuan. 24Q3 asset impairment losses accrued 0.008 billion yuan; 24Q3 inventory impairment resale 0.004 billion yuan (1% gross profit margin increase), 24Q2 resale 0.013 billion yuan (3% gross profit margin increase), removing the impact of inventory impairment resale, 24Q3 gross margin -1 pcts month-on-month.

High-capacity NOR and MCUs open up room for growth and gradually realize it.

1) NOR Flash: Small to medium capacity: The 1M-128M pioneered the use of a unique SONOS process. It has significant advantages of low power consumption and high cost performance. It has been upgraded from 55nm to 40nm, and the manufacturing process is leading the world. Large capacity: Since '22, mainstream ETOX process products have been launched, and have entered more than 128M. The company uses 50nm and 55nm processes, and currently 512M has been mass-produced and shipped. In the field of vehicle regulations, small and medium capacity SONOS NOR automotive products have successively completed AEC-Q100 certification. They are mainly used for front-mounted navigation, central control and entertainment in some brand models. At the same time, the company's full-capacity ETOX NOR passed AEC-Q100 certification.

2) MCU: Using the characteristic eFlash process, it currently covers 55nm and 40nm process processes, 22 years of ARM core M0+ mass production, 24 years of M4 core mass production to expand the middle and high-end market. 23 reports 200+ particle numbers, 24 interim reports 300+ particle numbers, and the number of material numbers continues to increase. In terms of new products, the company develops generator-specific M0+ MCU products, covering single-phase to three-phase, low to high pressure fan and water pump applications. Currently, 1 series has been mass-produced, mainly used in electric tools, fans, water pumps, etc.; M4 has been mass-produced and shipped in 1 series of more than 10 pieces, and the products are mainly used in smart homes, small appliances, and stage lighting; R&D and design of high-performance touch technology MCU based on home appliance control and consumer electronics touch functions has been completed. The company launched MCU products in '22, and MCU quickly seized the market. Shipments reached more than 0.2 billion units in '23, and shipments of more than 0.3 billion pieces in 24H1. We are optimistic about subsequent high growth. In 2022, the global MCU market was 25 billion US dollars, and the NOR Flash market was about 3 billion US dollars. The company expanded MCU to open up space for growth several times.

3) EEPROM: Leading the process and developing towards high-capacity, industrial and automotive. Covering 2K-2M capacity, leading product processes and complete capacity coverage, expanding into higher value-added fields such as vehicle regulation and industry.

4) Analog products: In terms of VCM Drivers, open loop products, OIS, and VOIS products have all been shipped, and can be supplied to customers together with the company's EEPROM products. In addition, the company launched a pre-drive product line, which is used to seal BLDC motor drives with MCU to help MCU better serve customer needs in the fan and water pump categories.

Investment advice

In NOR Flash and EEPROM, the company seized industry opportunities with strong product competitiveness and grew into the second NOR and EEPROM in mainland China, and is now expanding high-capacity NOR and MCU to open up room for growth. Previously, net profit to mother was expected to be 0.27/0.39/0.507 billion yuan. Considering significant cyclical fluctuations in the storage industry, compounded by weak recovery in downstream demand, the 24-26 net profit to mother was adjusted to be 0.29/0.34/0.42 billion yuan, PE was valued 29/24/20 times, maintaining a “buy” rating.

Risk warning: Downstream demand falls short of expectations, risk of increased competition between NOR and MCU, risk that public data used in research reports may be out of date or not updated in a timely manner, etc.