Zhaoyi Innovation released its 24 semi-annual report. 24H1 achieved revenue of 3.609 billion yuan, yoy +21.69%, and net profit to mother of 0.517 billion yuan, yoy +53.88%. 24q2 achieved revenue of 1.982 billion yuan in a single quarter, yoy +21.99%; realized net profit to mother of 0.312 billion yuan, yoy +67.95%. 24H1 achieved gross profit margin of 38.16%, yoy +4.73pcts; achieved net profit margin of 14.33%, yoy+3.0pcts. 24Q2 achieved gross profit margin of 38.15%, yoy +8.7pcts, basically flat month-on-month; achieved net profit margin of 15.75%, yoy+4.31pcts, and QoQ +3.17pcts. The reason for the rapid increase in the company's semi-annual performance is that after experiencing sluggish market demand and gradual inventory removal in 2023, demand picked up in the consumer and Netcom markets in the first half of 2024. At the same time, the company achieved remarkable market expansion results for products such as DRAM and SLC Nand, driving the company's memory chip product sales and revenue growth.

Flash: The company is the second largest SPI NOR Flash manufacturer in the world, which can meet the needs of customers for capacity, voltage, and packaging forms in various product applications in different fields; at the same time, the company SPI NAND Flash has achieved full product coverage in the fields of consumer electronics, industry, automotive electronics, etc. 24H1 was accompanied by a recovery in demand for downstream terminals, and the company achieved continuous growth in the consumer market, Netcom and other markets, which led to a significant year-on-year increase in overall shipment volume and revenue.

Self-developed DRAM: The market expansion effect was obvious in the first half of the year, and the total number of customers sold further increased. The company's shipments of DDR3L and DDR4 products have continued to increase, covering application areas such as Netcom and TV, as well as major customer groups. DDR4 8Gb products have been successfully streamed and samples have been provided to customers. DDR4 8Gb products are expected to further drive storage business growth.

MCU: The company continues to enrich its product matrix. The 24H1 consumer and industrial markets are the top two revenue contributors.

Driven by demand for photovoltaics, industrial control, optical modules, etc., the revenue contribution of the industrial sector has increased, and shipments have also increased year-on-year in the consumer, automotive, network communication, and storage computing sectors.

Profit forecast and investment suggestions: As the leading domestic memory chip and MCU leader, GigaYi Innovation continues to improve its product line and expand its share. The leading position continues to strengthen, and it is expected to usher in better growth in the upward cycle.

The elimination of MCU downstream inventory has come to an end, and the memory chip business is accelerating. Among them, the DRAM and SLC business, after settling down, is expected to usher in significant volume in the next few years, and a new growth cycle for storage leaders will begin!

Based on this, we expect the company to achieve net profit of 1.24/2.02/2.56 billion yuan in 2024/2025/2026, corresponding growth rate of 668.0%/63.5%/26.8%. The corresponding PE valuation is 42.6/26.1/20.6x, respectively, maintaining a “highly recommended” rating.

Risk warning: Downstream demand falls short of expectations, industry competition intensifies, and R&D progress falls short of expectations.