2Q24 revenue and profit increased significantly year over month. The company's main products include memory, microcontrollers and sensors; among them, memories are divided into SPI NOR, SLC NAND and DRAM. Microcontrollers include ARM cores and RISC-V open source cores, and sensors include touch and fingerprint recognition chips. 2Q24 achieved revenue of 1.982 billion yuan (YoY +21.99%, QoQ +21.78%), net profit of 0.312 billion yuan (YoY +67.95%, QoQ +52.46%), net profit of 0.29 billion yuan (YoY +99.25%, QoQ +57.66%), gross profit margin of 38.15% (YoY+8.70pct, QoQ-0.01pct).

Market demand picked up, and revenue from storage, MCU, and sensors all achieved year-over-year growth. Driven by the growth of consumer markets, Netcom and other markets, 1H24 Flash product shipments increased dramatically, and storage products achieved revenue of 2.605 billion yuan (72%), an increase of 29.41% over the previous year. Thanks to the increase in shipments in industrial fields and consumer applications such as photovoltaics, industrial control, optical modules, etc., and the increase in the penetration rate of automotive products, MCU achieved revenue of about 0.805 billion yuan (22%), an increase of 4.27% over the previous year. In addition, sensor products achieved revenue of approximately 0.192 billion yuan (5%), an increase of 8.47% over the previous year.

NorFlash maintains its advantage in the storage product field, and downstream applications continue to expand. The company's SPI NOR Flash ranks second in the world, and can provide 13 types of capacity (512Kb-2Gb), 4 different voltage ranges, more than 20 product lines, 6 temperature specifications and more than 20 different package options. The automotive-grade SPI NAND Flash achieves full capacity coverage of 2Mb-8Gb, and has been used in smart cockpits, intelligent driving, intelligent connectivity, and large and three-electric systems for new energy electric vehicles; SLC Nand has entered various customers with Nor Flash. DDR3 has been used in the fields of network communication, television, set-top boxes, industry, smart home, etc.; DDR4 8Gb products have been successfully streamed and samples have been provided to customers.

The 32-bit MCU recovered moderately, and simulated products were built around the MCU ecosystem. The company's GD32 MCU has mass-produced 51 series and over 600 products, and the core covers ARM? Cortex? -M3, M4, M23, M33, and M7 are the world's first to launch and mass-produce 32-bit MCUs based on RISC-V, covering 110nm, 55nm, 40nm, and 22nm processes. Vehicle MCUs gradually cover automotive scenarios such as body control, automotive lighting, smart cockpit, auxiliary driving, and motor power supply. According to WSTS estimates, the global MCU market will grow at 1.6% and 5.2% respectively in 24-24. As the automobile and industrial intelligence increases, demand structure improvements are compounded by industry growth, and the company's MCU business is recovering. In addition, the company has GD30 series analog products, which cover dedicated power management, high-performance power supplies, motor drives, lithium battery management, analog-to-digital converters (ADCs), and various voltage reference products around the MCU ecosystem.

Investment advice: Based on the company's leading position in domestic memory chip and MCU chip design, we expect the company's net profit to be 1.053/1.55/1.986 billion yuan in 24-26 (previous value 1.053/1.563/2.004 billion yuan). The PE ratio corresponding to the current stock price is 47/32/25 times, maintaining the “superior to market” rating.

Risk warning: downstream demand falls short of expectations; development of new products falls short of expectations; deterioration of international relations, etc.