Event: the company released its three-quarter report of 2023 on October 23, with revenue of 1.094 billion yuan, YoY-18.2%, net profit of 158 million yuan, YoY-44.6%, and non-net profit of 140 million yuan, YoY-49.8% in the first three quarters of 2023. The performance is slightly lower than market expectations, mainly affected by the downstream demand rhythm. But at the same time, the company announced plans to buy back 30 million to 60 million yuan, demonstrating the company's confidence in development.

Affected by the pace of demand, 3Q23 is losing money; profitability is declining. 1) in a single quarter, 3Q23 achieved revenue of 206 million yuan, YoY-54.2%, net profit of-32 million yuan, compared with 100 million yuan in the same period last year, and non-net profit of-36 million yuan, compared with 97 million yuan in the same period last year. Due to the pace of downstream demand, the company's growth has slowed since 2Q23, and we expect the company to return to high growth in the fourth quarter as downstream demand recovers and capacity is released. 2) profitability: in the first three quarters of 2023, gross profit margin fell 1.4ppt to 48.4% year on year; net profit margin dropped 8.0ppt to 13.9% year on year; 3Q23 gross profit margin dropped 10.5ppt to 41.1% year on year; net profit margin dropped 40.8ppt to-17.4% year on year.

Continuous research and development to cast core barriers; increase in inventory and contract liabilities. During the first three quarters of 2023, the expense rate increased from 9.8ppt to 33.6% compared with the same period last year. 1) the sales expense rate increased from 0.7ppt to 4.3%; 2) the management expense rate increased from 2.1ppt to 7.1%; 3) the financial expense rate was 0.6%, compared with 1.3% in the same period last year. 4) the R & D expense rate increased to 21.7% year-on-year; R & D expenses increased by 27.4% to 237 million yuan. By the end of 3Q23, the company: 1) accounts receivable and bills 1.291 billion yuan, 6.1% less than 2Q23 2) prepaid 15 million yuan, 24.7% less than 2Q23 3) inventory 1.068 billion yuan, 6.9% more than 2Q23 4) contract liabilities 7 million yuan, 15.8% more than 2Q23 end. The net cash flow of operating activities in the first three quarters of 2023 was-171 million yuan, compared with-256 million yuan in the same period last year.

Buyback shows long-term confidence; invest in power semiconductors to improve the layout of the industry. 1) on October 17, based on confidence in the future development prospects and recognition of the value of the company's shares, the chairman of the company proposed that the company buy back some of the shares through centralized competitive trading and use them for employee stock ownership plans or equity incentives. The repurchase price does not exceed 25 yuan per share, and it is estimated that 120-2.4 million shares will be repurchased, accounting for 0.22-0.45% of the total share capital, with a total amount of 3,000-60 million yuan. 2) in order to further expand the production capacity and improve the industrial layout, the company intends to establish an independent legal person company registered in Chengdu High-tech Zone to invest in the construction of the new Leineng power semiconductor R & D and settlement headquarters project, which is engaged in power IC design and sales business; it intends to purchase from the state-owned platform company of Chengdu High-tech Zone the office building of IC Design Industrial Park not exceeding 6000 square meters. The total investment in 5 years is expected to be 500 million yuan (including 50 million yuan of registered capital of the newly established company), and the project is expected to be put into operation before June 2024.

Investment suggestion: the company is China's special power leader, aerospace and other special areas of rapid development, domestic and foreign communications, server power supply and other strong demand, the company's market share continues to increase. With the advance of the medium-term adjustment, orders may gradually fall to the ground, and the performance is expected to return to high growth. Considering the pace of demand, we downgrade the company's profit forecast. It is estimated that the company's net profit in 2023-2025 is 300 million yuan, 450 million yuan and 700 million yuan respectively, and the current stock price corresponds to 30x/20x/13x in 2023-2025 PE. Maintain the recommended rating.

Risk hint: the progress of the fund-raising project is not as expected, and the progress of new product development is not as expected.