On August 20, the company released its 2024 annual report. With 2024H1, the company achieved revenue of 3.609 billion yuan, YoY +21.69%; net profit to mother of 0.517 billion yuan, YoY +53.88%; gross margin and net margin were 38.16% and 14.33%, respectively. Looking at 2Q24 in a single quarter, the company's revenue reached 1.982 billion yuan, YoY +21.99%; net profit to mother reached 0.312 billion yuan, YoY +67.95%; gross margin and net margin were 38.15% and 15.75%, respectively.

Under the recovery in demand for the Nor Flash business, consumer electronics, Netcom, and security, Q2 demand grew relatively well. As the world's second-largest SPI Nor Flash manufacturer, product shipments and revenue grew rapidly, with revenue of more than 40% over the same period in the first half of the year. Q2 Due to tighter supply, Nor prices rose steadily, and the company's gross margin increased slightly compared to the same period last year. Looking ahead to Q3, the consumer sector did not show traditional peak season characteristics, but the increase in product specifications such as AI PCs, TWS, and AI servers led to a moderate recovery in market demand, and the company's share of shipments of medium- to high-capacity, industrial, and vehicle standard products is expected to continue to increase.

In terms of DRAM, the company has basically achieved a shift from consignment sales to a self-developed brand DRAM business. In 2024, the procurement amount doubled, and the completed procurement amount in the first half of the year accounted for 53% of the contract amount. 24H1's DRAM business market expansion results are obvious. Shipments of DDR3L and DDR4 continue to increase, and it has achieved good revenue in the fields of consumer electronics, industry, network communication, etc. On the supply side, overseas original manufacturers are gradually increasing investment in high-end products such as HBM and DDR5, and the supply of products such as DDR4 and DDR3 has been reduced accordingly, leading to a tightening of the supply of niche DRAM, driving the price of 24H1 niche products to rise.

MCU business, the company's MCU business 2024H1 achieved 0.805 billion yuan. Compared with the same period last year, it achieved contrarian growth, mainly due to demand for photovoltaics, industrial control, optical modules, etc., and revenue in the industrial sector increased. Although demand for automobiles is weak in the short term, the trend of electric intelligence is still advancing. The company has established in-depth partnerships with many leading Tier 1 companies. In the future, as car manufacturers and Tier 1 gradually remove inventory, inventory replenishment will drive the scale of automotive MCUs to continue to expand, and drive the company's performance to continue to grow.

We predict that the company's net profit from 2024-2025 will be 1.127/1.53 billion yuan, giving the company a 37x valuation, corresponding to a target price of 85 yuan/share, maintaining a “buy” rating.

Risk warning

Upside risks: downstream prosperity accelerates; overseas manufacturers exit at an accelerated pace; market share continues to rise; downside risks: product price recovery falls short of expectations; downstream demand recovery falls short of expectations; other systemic risks