Revenue increased 36% year over year in the first three quarters, and hit a quarterly high in the third quarter. The company achieved revenue of 1.366 billion yuan (YoY +36.49%) in the first three quarters of 2024, net profit to mother of -0.408 billion yuan, and net profit after deducting non-attributable net profit of -0.441 billion yuan. The loss margin increased compared to the same period last year. Net profit to mother after excluding share payment fees was -0.19 billion yuan. Among them, 3Q24 achieved revenue of 0.517 billion yuan (YoY +86.59%, QoQ +6.32%), a quarterly high; net profit attributable to mother of -0.142 billion yuan, after deducting non-attributable net profit of -0.155 billion yuan. Revenue growth is mainly due to a steady increase in demand in the downstream automotive electronics sector, the company continues to release products related to the automotive electronics sector; the boom in the consumer electronics sector continues to improve; and most customers in the pan-energy industrial automation and digital power supply sectors have returned to normal demand.

Product prices were under pressure, and gross margin declined year on year. The company's gross margin for the first three quarters of 2024 was 33.21%, down 7.86pct from the same period last year, of which 3Q24 gross margin was 32.06%, down 4.4 pct year on year, and 3.3 pct month-on-month. The pressure on gross margin was mainly due to the pressure on the company's product sales prices due to increased macroeconomic and market competition. In terms of expenses for the period, R&D expenses decreased by 0.69% to 0.496 billion yuan in the first three quarters, R&D rates fell 13.6 pcts to 36.29% year over year; management rates decreased 1.6 pcts to 15.78% year over year, sales rates increased 0.9 pct to 9.89% year over year, and financial rates increased 1.5 pct to -1.29% year over year. Among them, 3Q24 R&D rates all declined year on month, management rates and sales rates decreased year on year, and financial rates increased year on year and month over month. The total rate increase for the four periods decreased by 31.3 pct year on year, and increased by 1.1 pct month on month.

McGowan's acquisition plan was changed from a holding company to a wholly-owned acquisition, and changes to the shareholder register have been completed. According to the company's announcement on October 15, the proportion of McGowan acquisitions increased from 79.31% previously to 100%, and McGowan's overall valuation corresponding to the transaction price remained at 1 billion yuan. After the transaction was completed, the company directly held 68.28% of McGowan's shares, and the company and its wholly-owned subsidiary Naxin Investment indirectly held 31.72% of McGowan's shares through Shanghai Lairui and Shanghai Leave a Message. Furthermore, this transaction does not set a performance promise. By paying McGowan's core team its property share transfer price in installments, it will help stabilize McGowan's management team and core employees, maintain McGowan's core competitiveness, and achieve long-term stable development. At present, McGowan has completed the shareholder register change, and the company has obtained 62.68% of McGowan's shares directly held by Silicon Technology.

Investment advice: The acquisition is progressing smoothly, and gross margin is still under pressure due to price competition for products rated “superior to the market”. We lowered the company's net profit to mother in 2024-2026 to -2.20/+0.60/+0.179 billion yuan (previous value -1.81/+0.75/+0.181 billion yuan), and PS corresponding to the stock price on October 28, 2024 was 10.0/7.1/5.8x, respectively. The company focuses on the pan-energy and automotive sectors, and the acquisition is progressing smoothly, maintaining a “superior to the market” rating.

Risk warning: Demand falls short of expectations, product development falls short of expectations, customer introduction falls short of expectations, acquisition integration falls short of expectations.