The company achieved revenue of 0.911 billion yuan (yoy: +51.36%, qoq: +29.12%) and net profit of 0.169 billion yuan (yoy: +221.68%, qoq: +46.75%) in 3Q24, slightly higher than the median forecast value (0.163 billion yuan). Relying on the continued growth of the company's share in the AIoT industry, especially in automotive electronics, industrial, consumer markets, etc., the third quarter was the industry's traditional peak season, and the company's third-quarter revenue reached a record high in a single quarter. Driven by rapid revenue growth, the scale effect was gradually reflected, and due to continuous improvement in gross margin, 3Q24 net margin reached 18.54% (yoy: +2pct, qoq: +2.23pct), and profit flexibility was released. The target price was raised to 106.1 yuan (previous value: 68.1 yuan) to maintain the “buy” rating.

3Q24 review: The flagship chip RK3588 ushered in a period of rapid growth. The gross margin continued to rise. 3Q24 ushered in the peak season of the industry (double eleven, black five, Christmas, etc.), and entered a period of rapid growth with the improvement of the product matrix and the next new material number. For example, RK3588 continued to increase in shipments driven by markets such as automobiles, edge computing, large electronic screens, and AI learning machines. The company achieved rapid year-on-month revenue growth in the third quarter. In terms of gross margin, the company's 3Q24 gross margin reached 37.34% (yoy: +1.26pct, qoq: +0.48pct), which we expect mainly to benefit from cost optimization and an increase in the share of high-end products.

In terms of expenses, 3Q24's R&D expenses were 0.146 billion yuan, and the R&D cost rate was 16.00%, a decrease of 4 pcts over the previous month. In terms of inventory, as of the end of the third quarter, the company's inventory was 0.926 billion yuan, a decrease of 0.105 billion yuan from the end of the previous quarter, and the number of inventory turnover days dropped to 214 days.

2024 outlook: Combining “product” + “market”, with significant improvement in operating efficiency. Considering that overseas peak season preparations are mainly concentrated in the third quarter, we expect consumer revenue to fluctuate seasonally in 4Q24, but at present, the company's market reach is spread across many fields, which can effectively smooth out these effects. Furthermore, the current balance between supply and demand is relatively balanced. We expect the company's gross margin to remain stable in the fourth quarter, and there is still room for improvement in the long-term consideration of high-end trends. The company has now established a new marketing system guided by product lines, with the RK3588 series as its flagship, forming a multi-level product portfolio that meets different needs in each product line. In the future, with a more complete product catalog, the company will continue to strengthen market promotion in key fields such as automotive electronics, machine vision, industry and robotics, educational offices, and consumer electronics, and its share in various AIoT fields is expected to continue to increase.

Investment advice: Raise the target price to 106.1 yuan, maintain the “buy” rating. Considering that the previous flagship platform RK3588 has entered the high-speed volume stage, and the new products RK3576, RK2118, and RV1103B launched by the company this year have been introduced to leading customers one after another and formed additional volume. We raised our 24-26 revenue forecast to 3.4/073.92/4.806 billion yuan (previous value:

2.844/3.709/4.68 billion yuan), and the net profit forecast to parent was raised to 0.503/0.727/1 billion yuan (previous value: 0.405/0.621/0.92 billion yuan). Considering that AI is expected to spawn end-side explosive applications, we gave 61x25PE (comparable company Wind agreed to 52x) and a target price of 106.1 yuan, maintaining a “buy” rating.

Risk warning: Demand recovery falls short of expectations, promotion of new products falls short of expectations, and market competition intensifies.