Key points of investment:

24Q3 performance was steady month-on-month, with a slight decline after deducting non-net profit

According to the company's three-quarter report, 24Q3 achieved revenue of 0.54 billion yuan, YOY +50%, and QoQ +1%. 24Q3 achieved net profit of 0.1 billion yuan to mother, yoy +340%, and qoq +2%. 24Q3 achieved deduction of non-net profit of 0.09 billion yuan, YOY +492%, and QoQ -13%. The year-on-year increase in the company's 24Q1-Q3 net profit was mainly affected by a combination of three factors: (1) revenue growth, (2) a steady increase in gross margin, and (3) the cost growth rate was controlled under the revenue growth rate, and the operating leverage effect was evident. It is worth noting that 24Q3 generated non-recurring profit and loss items of 14.2 million yuan (24Q1-Q3:20.17 million yuan), mainly related to government subsidy programs included in current profit and loss.

Structural changes in gross margin, and net margin showed a significant operating leverage effect (1). Gross profit margin: 24Q3 gross profit margin of 42.14% in a single quarter, yoy +1.56%, qoq-1.97pcts.

The composite gross profit margin for the first three quarters of 24 was 42.81%, of which chip gross profit margin was 50.15% (24H1:

49.00%), module and development kit gross profit margin 37.97% (24H1:38.91%). The year-on-year increase in comprehensive gross margin in 24Q3 was mainly affected by structural changes in customer sales. Structural changes in the increase in chip revenue share further increased the overall gross profit margin. When the comprehensive gross margin can reach the pre-set target of 40%, the company will minimize pricing changes. (2) Net interest rate:

24Q3 net profit margin 18.37%, yoy +12.10%, qoq -0.16%. In terms of R&D expenses, 24Q3 reached a record high of 0.12 billion yuan per quarter. The company had 542 R&D personnel at the end of 24Q3, YOY +10.61%.

We have observed that while the company continues to increase investment in R&D, the net interest rate still increased sharply year over year, and the operating leverage effect brought about by the release of performance is remarkable.

The export boom of household appliances continues, and the pan-Internet of Things market has blossomed. According to Wind, China's export value of household appliances reached 26.2 billion US dollars, yoy +11%, and qoq -2% in 24Q3; 24Q1-Q3 reached 75.3 billion US dollars, yoy +12%.

According to the company's three-quarter report, 24Q3 smart homes and consumer electronics are still the main revenue sources, and the growth rate is expected to be 30-35% this year. The penetration rate of IoT in various industries other than the home sector has begun to increase. Benefiting from the continuous spread of ecological influence, the company's business showed high growth in the fields of energy management, tools and equipment, and health. Many potential new customers joined during the 2023-2024 period, increasing the average growth rate. Looking ahead to 24Q4, the domestic “Double 11" is in full swing, and overseas holidays will soon be ushered in. It is expected to show good peak season attributes. We are optimistic that the company's Q4 performance will rise to the next level.

Profit forecasting and investment advice

We believe that the company's 24Q3 results are basically in line with performance expectations. We maintain our previous forecast and expect the company to achieve net profit of 0.33/0.47/0.64 billion yuan in 2024-2026, corresponding to the current PE valuation of 45/31/23 times. Maintain a “buy” rating.

Risk warning

There is a risk that the consumer electronics recovery will not last as long as expected, the risk of market competition, the risk of technology renewal, and the risk that R&D progress falls short of expectations.