2024Q1-3 revenue grew steadily, with sufficient future growth, maintaining a “buy” rating of 2024Q1-3; achieved revenue of 0.978 billion yuan, +5.95% year over year; achieved net profit of 0.09 billion yuan, -9.64% year over year; realized net profit without return to mother 0.087 billion yuan, +11.99% year on year; achieved gross profit margin of 33.82%, -2.25 pcts year on year; 2024Q3 achieved revenue of 0.324 billion yuan in a single quarter, year over year +10.28%, -3.09% month-on-month; realized net profit of 0.019 billion yuan, +35.77% YoY, -52.53% month-on-month; realized net profit of 0.02 billion yuan, +40.88% YoY, -48.67% month-on-month; achieved gross profit margin of 32.57%, -2.43pcts YoY and -2.44pcts month-on-month. As the recovery slope of downstream demand falls short of expectations, we lowered our 2024-2026 net profit forecast to 0.107/0.203/0.276 billion yuan (previous value was 0.168/0.252/0.353 billion yuan), and the current stock price corresponding PE is 83.4/44.0/32.3 times. We are optimistic about the long-term growth brought about by the company's continuous launch of products with competitive advantages, and maintain a “buy” rating.

Focus on R&D investment to enhance the company's core competitiveness

2024Q1-3 spent 0.227 billion yuan on R&D, a slight year-on-year increase, accounting for 23.19% of revenue. The company is based on research and development. The main product direction is industrial standard, automotive microcontroller chips (all called lithium battery management chips) and AMOLED display driver chips, which have a broad market space. The company has maintained a large investment in R&D for a long time, and continuously launched products with technological innovation and competitive advantages in the market, which is expected to enhance the company's core competitiveness and inject long-term growth momentum. At the same time, the company and its subsidiaries have obtained 5 invention patents in 2024, further strengthening the moat.

In the short term, we are optimistic about downstream market recovery+profitability improvement. In the short term, demand in the 2024Q4 industry is expected to recover. Negotiations between the company and upstream foundry are expected to gradually show results, and gross margin is expected to gradually improve. In the long run, Renesas's market share in the white power MCU market is currently leading. The lithium battery management chip market is mainly monopolized by European and American companies. We are optimistic about the recovery in downstream market demand and the continuous development and profitability of the company's product line. Incremental revenue from improvements and substitution of domestic production.

Risk warning: downstream demand falls short of expectations; customer introduction falls short of expectations; technology research and development falls short of expectations.