Incident: The company released its three-quarter report for 2024. In the first three quarters of 2024, the company achieved revenue of 1.192 billion yuan, a year-on-year increase of 18.62%; realized net profit to mother of -0.507 billion yuan, an increase in year-on-year losses; and realized deducted non-net profit of -0.533 billion yuan, increasing year-on-year losses. In 2024, the Q3 Company achieved revenue of 0.441 billion yuan, up 24.15% year on year and 4.70% month on month; achieved net profit to mother of -0.17 billion yuan, narrowing year-on-year losses and increasing month-on-month losses; deducted non-net profit of -0.173 billion yuan, narrowing year-on-year losses and increasing month-on-month losses.

Revenue grew steadily year on year in the first three quarters, and net profit declined year on year: in the first three quarters of 2024, the company's operating income achieved steady year-on-year growth, while net profit to mother and net profit declined year on year. The main reasons were: 1) the gross margin of the company's products declined year on year; 2) R&D expenses increased due to increased R&D investment; 3) increased inventory price reduction preparations. In the first three quarters of 2024, the company's gross margin was 28.03%, -0.71 pct year on year; the company's net margin was -42.92%, -6.52 pcts year on year. In terms of expenses, the company's sales, management, R&D and financial expenses for the first three quarters of 2024 were 7.44%/7.65%/41.14%/1.55%, respectively, with year-on-year changes of -0.73/-1.41/+1.49/+1.66pcts, respectively. The company is actively expanding its market share in emerging application fields such as new energy, computing, and automobiles. Through accurate market positioning and innovative product design, the company has successfully entered many market segments with high growth potential, and the company's performance is expected to improve in the future.

Actively expand emerging application fields, and diversified layout enables growth: In the first half of 2024, the company carried out innovative product design through accurate market positioning, and actively expanded market share in emerging application fields such as new energy, computing, and automobiles. The company released various products such as highly integrated DC-DC modules, buck-boost (buck-boost) DC-DC, amplifiers, comparators, analog switches, etc., which have been recognized by customers in the fields of new energy and automobiles. In the electronic protection switch (eFuse) category, the company launched a variety of industry-leading horizontal power tube integrated products, including 18V/25A, 18V/50A, etc., which have the advantages of low conduction power consumption, high starting current capacity, and strong protection performance in harsh conditions, and have been widely praised by customers in the computing field.

In the field of Netcom and security, the company has launched a variety of PoE Ethernet power supply chips, including highly integrated 4-channel PSE power supply chips, PD power receiving terminal protocols and fully integrated power chips, which have been tested by many leading customers. In addition, the company has launched a variety of high and low side driver chips for automotive applications, and has basically completed the layout of automotive LDO. Furthermore, the company has formed a complete DRMOS+ multi-phase product matrix in application fields such as PC-server-AI-autonomous driving. In 2023, the company focused on launching 90A DrMOS products. In 2024, the company plans to launch 12-phase multiphase power products. Other series of products continue to be developed, and the company's 30A to 90aDRMOS and 6-phase and 8-phase multiphase controllers have all been mass-produced.

The analog chip market is broad, and DC-DC products are successfully introduced: with its advantages in technology accumulation and quality management, the company has formed a multi-category, wide-coverage, and cost-effective product supply system in the field of power management analog chips, and signal chain chip products continue to be rich. The scope of application of the company's products covers different fields such as new energy, automotive electronics, communication electronics, computing and storage, industrial applications, and consumer electronics.

According to functional division, power management chip products include subcategories such as AC-DC chips, DC-DC chips, linear power supply products, battery management chips, etc. Signal chain chips include subcategories such as detection chips, interface chips, converter chips, clock chips, and linear chips. The company's products are divided into many categories, which can meet the diverse application needs of different categories of customers. In the notebook field, the company can provide complete PC power solutions. It is a qualified supplier to many of the world's leading notebook foundries, and several DC-DC product lines have entered the supply chain system of well-known end customers. In the field of vehicle regulations, the company has launched a complete 5-100V DC-DC product matrix that meets AECQ100, and has successively introduced supply chain systems from well-known car manufacturers or tier 1 suppliers, which better meets the DC-DC needs of new energy vehicles. According to Frost & Sullivan, with the two-wheel drive of new technology and industrial policies, the Chinese analog chip market will usher in development opportunities in the future. It is expected that the Chinese analog chip market will grow to 333.95 billion yuan by 2025, with a compound growth rate of about 5.15% from 2021 to 2025. According to the World Semiconductor Trade Statistics Organization (WSTS) forecast, the global analog chip market will reach 84.1 billion US dollars in 2024, up 3.7% year-on-year from 2023. Domestic analog IC manufacturers are expected to accelerate domestic replacement and enhance competitiveness in the global market through technological innovation and market expansion. With its advantages in technology research and development and quality management, the company has formed a multi-category, wide-coverage, and cost-effective product supply system in the field of power management analog chips, and signal chain chip products continue to be rich.

Maintaining the “gain” rating: The company's products cover all major analog chip categories, creating a multi-category and multi-level chip development pattern. Under the influence of diversified downstream demand, the analog chip market continues to deepen and expand, showing a trend of differentiation, integration, efficiency and intelligence. The company is expected to continue to improve product competitiveness with a comprehensive product layout and self-developed process system, which is expected to drive performance recovery. Affected by the decline in overall demand in the downstream terminal market and the removal of customer inventory, we lowered our profit forecast. We expect to achieve net profit to mother of -5.66/ -0.14/0.082 billion yuan respectively in 2024-2026, corresponding to EPS of -1.27/-0.31/0.18 yuan/share, respectively. The current stock price is 178X corresponding to the 26-year PE.

Risk warning: risk of exchange rate fluctuations, downstream demand recovery falling short of expectations, risk of technological innovation, risk of market competition.