Incident: Recently, the company released a report for the third quarter of 2024. In the first three quarters of 2024, the company achieved revenue of 24.978 billion yuan, +22.26%; net profit to mother of 1.076 billion yuan, +10.55% year over year; net profit without return to mother of 1.021 billion yuan, +36.73% year over year; in the third quarter of 2024, the company achieved revenue of 9.491 billion yuan, +14.95% YoY, +9.80% month-on-month; net profit to mother 0.457 billion yuan, -4.39% year over year, -5.57% month on month; net profit without return to mother was 0.44 billion yuan, up +19.50% year over year, -7.21% month on month.

Key points of investment:

24Q3 single-quarter revenue reached a record high, and factors such as changes in product structure affected short-term gross profit margins. Since 2024, the company's factory operations have rebounded, capacity utilization rates have continued to rise, and business in all application sectors has stabilized. Revenue in the first three quarters of the four major applications of communications, consumption, computing and automotive electronics all increased by double digits year-on-year. Among them, communications electronics achieved a significant year-on-year increase of nearly 40%, and the company's 24Q3 revenue reached a record high in the single quarter. Due to factors such as changes in the company's product structure affecting short-term gross profit margins, the company achieved gross margin of 12.93% in the first three quarters of 2024, down 0.94% year on year; 24Q3 gross margin was 12.23%, down 2.13% year on year, down 2.05% month on month; the company achieved net interest rate of 4.29% in the first three quarters of 2024, down 0.48% year on year, down 4.78% year on year, down 1.01% month on month.

Focusing on high-performance advanced packaging is expected to drive the company's continued growth in performance. In the field of high-performance advanced packaging, the XDFOI Chiplet high-density multi-dimensional heterogeneous integration series process launched by the company has entered a stable mass production stage as planned. This technology is an extremely high-density, multi-fan-out package high-density heterogeneous integration solution for Chiplets. It uses collaborative design concepts to integrate finished chip integration and testing, covering 2D, 2.5D, and 3D integration technologies, and the company continues to promote the development and production of its diverse solutions. Through continuous R&D and customer product verification, the company's XDFOI technology has made continuous breakthroughs. It has been applied in the fields of high-performance computing, artificial intelligence, 5G, automotive electronics, etc., providing customers with finished chip manufacturing solutions that are lighter and thinner, with faster data transmission speed and lower power loss to meet the growing needs of the terminal market. The company focuses on high-performance advanced packaging, strengthens innovation and upgrading, and is expected to drive continued growth in performance as the boom in the semiconductor industry picks up.

The acquisition of Shengdi Semiconductor completed the transaction, enhancing the company's global competitiveness in memory packaging and testing. The company's acquisition of 80% of the shares of Shengdi Semiconductor (Shanghai) Co., Ltd. was completed on September 28, 2024, and included in the scope of the company's merger on the day of delivery. According to TrendForce data, in the second quarter of 2024, Samsung, SK Hynix, Kioxia, and Micron ranked the top four in the global NAND Flash market with a market share of 36.9%, 22.1%, 13.8%, and 11.8%, respectively, and Western Digital ranked fifth in the world with a market share of 10.5%; Shengdi Semiconductor's parent company is Western Digital, and Shengdi Semiconductor has strong technical advantages in NAND Flash testing. The products are widely used in mobile communications, industrial and Internet of Things, automobiles, smart homes and consumer terminals and other fields. Through the acquisition of Shengdi Semiconductor, the company will expand its market share in the field of storage and computational electronics, establish closer strategic partnerships with customers, enhance the company's global competitiveness in the field of memory packaging and testing, and lay a solid foundation for the company's continued development and leading position in the global memory market.

Profit forecasting and investment advice. Due to the relatively slow recovery in downstream demand and a decline in the company's profitability, we lowered the company's profit forecast. The company's net profit for 24-26 is 1.611/2.464/3.01 billion yuan (the original value was 2.072/2.683/3.305 billion yuan), the corresponding EPS is 0.90/1.38/1.68 yuan, and the corresponding PE is 43.15/28.22/23.10 times, maintaining the “buy” rating.

Risk warning: Industry competition intensifies; downstream demand recovery falls short of expectations; new technology research and development progress falls short of expectations.