Description of the event

On October 23, 2024, Lexin Technology announced the “Report for the Third Quarter of 2024”. In the first three quarters of 2024, the company achieved revenue of 1.46 billion yuan, +42.17% YoY, and net profit of 0.251 billion yuan to mother, +188.08% YoY. 2024Q3 achieved revenue of 0.54 billion yuan, +49.96% YoY, +1.27% month-on-month, net profit to mother 0.099 billion yuan, +340.17% YoY, and +1.79% month-on-month.

Incident comments

Many downstream application fields have been expanded, and performance continues to increase. In the first three quarters of 2024, the company achieved revenue of 1.46 billion yuan, +42.17% year over year. While smart homes and consumer electronics contributed to the company's main revenue source, the Internet of Things penetration rate in various industries other than the home sector began to increase, and the continuous increase in multiple scenarios helped the company's revenue continue to rise; on the profit side, in the first three quarters of 2024, gross margin was 42.81%, +2.25pct year on year. The increase in chip ratio helped the company's gross margin increase; the company achieved net profit of 0.251 billion yuan, year on year + 188.08%, net profit after deducting non-return to mother was 0.231 billion yuan, +237.99% year over year. The high increase in revenue reflected the size advantage and the increase in gross margin helped the company's performance increase. By product, the company's chips and modules accounted for 38.5% and 60.7% of revenue, respectively, and the share of the chip business continued to increase; the gross margins of chips, modules and development kits were 50.15% and 37.97%, respectively, +3.32pct and 0.92pct compared to the same period.

There was a steady increase in results in the third quarter. In the third quarter of 2024, the company achieved revenue of 0.54 billion yuan, +49.96% year over month, continuous growth of new products combined with continuous introduction of new customers, and rapid year-on-year growth in the third quarter; achieved net profit of 0.099 billion yuan to mother and +340.17% year over year, net profit after deducting non-return to mother was 0.085 billion yuan, +492.15% year on year, gross margin of 42.14%, +1.56pct year on year.

Based on research and development, the product matrix creates core competitiveness. Lexin Technology adheres to R&D as the foundation. The R&D expenses for the first three quarters of 2024 were 0.34 billion yuan, +19.06%; the company carried out R&D innovation in the direction of “processing+connection”, and has now launched 12 different product lines. Self-developed 32-bit processors based on the RISC-V architecture have achieved frequencies from single-core 96MHz to dual-core 400MHz. Connectivity already includes Wi-Fi 4-WiFi6e, Bluetooth, Thread, and Zigbee technology. As the company's product matrix continues to be rich, the company's downstream fields will no longer be limited to the field of IoT devices; among them, the ESP32-S3 can achieve high-performance applications such as image recognition, voice wake-up and recognition; the ESP32-P4 product line integrates an H264 encoder and is equipped with AI expansion instructions to better support HMI applications. It is the company's first SoC without wireless connectivity to break through the communication+IoT market and enter the multimedia market; ESP32-H2 is a sign of the company's entry into the Thread/Zigbee market, further The technical boundaries of the company's Wireless SoC have been expanded, and rapid deployment has begun.

With the collaborative development of software and hardware+ecology, the long-term growth trend of leading ecological IoT technology remains unchanged. The improvement of Lexin Technology's own technical capabilities and continuous improvement of products in the direction of high performance and cost performance have helped the company's product application scenarios and number of downstream customers continue to increase; while the company values the developer community and adheres to the 2D2B business model, the acquisition of M5Stack has achieved a strong alliance, which is expected to further expand the coverage of long-tail customers and lay a firm foundation for the company's steady development in the medium to long term.

We expect net profit to be 0.347/0.472/0.628 billion in 2024-2026, respectively, maintaining a “buy” rating.

Risk warning

1. There is uncertainty about mass production of new products;

2. There is uncertainty in the electronic terminal consumer market.