Key investment points

Event Overview: Hongwei Technology released its report for the third quarter of 2024. 2024Q1-Q3 achieved operating income of 0.98 billion yuan (yoy -13.72%), realized net profit of 0.004 billion yuan (yoy -95.28%), realized net profit without return to mother of -0.01 billion yuan (yoy -112.28%), and a comprehensive gross profit ratio of 15.37% (yoy-6.03pcts). In 2024Q3, the company achieved revenue of 0.343 billion yuan (yoy -7.53%, qoq -12.08%), realized net profit of 0.002 billion yuan (yoy -93.37%, qoq -63.91%), realized net profit without return to mother of -0.007 billion yuan (yoy -129.26%, qoq -454.67%), and a comprehensive gross profit margin of 14.74% (yoy-6.91pcts, qoq-0.88pcts).

Product prices in the downstream application segment stabilized in the third quarter, and gross margin remained basically flat month-on-month. The company's revenue and net profit declined slightly in the third quarter, but gross margin was basically the same as in the second quarter, mainly because the product structure and price were relatively stable. In the third quarter of 2024, the company's industrial control sector accounted for about 33% of revenue, the new energy power generation sector accounted for about 26% of revenue, and the NEV sector accounted for about 40% of revenue. The overall revenue structure was relatively stable over the same period last year. The company has many product numbers in the industrial control field, so it is difficult for individual price fluctuations to affect the overall revenue level. In the NEV sector, although domestic price competition is still fierce, prices have basically stabilized in the third quarter after experiencing fierce market competition in the first half of the year. In terms of new energy power generation, the company is deeply tied to major customers in the photovoltaic field, so related performance has not been affected too much by the decline in industry fundamentals. As a high-quality target in the domestic IGBT field, the company continues to accelerate technological innovation, increase product added value, optimize price strategies to stabilize product pricing, and carry out internal cost reduction and fee control to promote a steep recovery in gross margin. It is expected that gross margin will improve marginally in the fourth quarter and next year.

Customers in various downstream segments are expanding rapidly, and the pace of new product introduction is good. It is expected to drive steady revenue growth in the fourth quarter and next year. (1) The basic market in the field of industrial control is stable. The company not only continues to increase its share of existing customers, but also actively explores business boundaries, serializes various current specifications around inverter applications, and has formed batch orders in high-value-added fields such as data centers and server power management. (2) In the field of new energy power generation, downstream demand has been repaired, the share of key PV customers is stable, and the delivery process is normal. In addition, the company has successfully introduced 3-4 new customers in the energy storage and wind power fields, and has already delivered them in the testing phase or in small batches. In terms of new products, the company has completed the development of a variety of 1700V series products, mainly for high-voltage frequency conversion, wind power converters, etc.; 650V-1700V multiple current specification module products have been developed to meet customer usage requirements; 650V 200A IGBT module products for energy storage have been delivered in small batches; seventh-generation IGBT module iterative products for energy storage power plants have been successfully developed and sampled by leading customers. (3) The company's NEV business revenue increased by about 30% year-on-year, and the installed capacity and market share grew steadily. The seventh-generation automotive IGBT module iterative product was successfully developed and samples were delivered to leading customers; the 750V double-sided cooling plastic module for vehicles has been mass-produced, which is expected to bring continuous growth to the company's performance after the formation of economies of scale.

R&D investment continues to rise, and the silicon carbide chip and module business has made substantial progress. The company's R&D expenses in the third quarter were 0.032 billion yuan, up 13.89% year on year, up 14.14% month on month, and R&D investment continued to increase. In the silicon carbide business, the company actively lays out chip and module packaging. In terms of chips, the company's 1200V 40mohm SiC MOSFET chips have been successfully developed and have passed reliability verification; automotive-grade 1200V 13mohm SiC MOSFET chips are being actively developed; self-developed SiC SBD chips have passed reliability verification and system-level verification by many end customers, and key clients have passed corresponding reliability and board-level performance tests, and some products have been shipped in small batches. In terms of modules, the company's automotive-grade 1200V SiC self-developed module is being developed, and the corresponding silver sintering process has passed reliability verification; two SiC hybrid modules and a SiC MOS module for industrial control have been successfully developed and passed customer performance tests; and SiC hybrid packaging modules for photovoltaic applications continue to be supplied. The company will give full play to its platform and customer advantages on the basis of IGBT and increase investment in R&D of silicon carbide products, which is expected to create a new growth curve.

Investment advice: Short-term, affected by downstream demand and price competition, performance is still in the recovery period. With the company's product launch and customer development, downstream demand is further picking up, and it is expected that future performance will improve. We have revised the valuation accordingly. The company's revenue for 2024, 2025, and 2026 is estimated to be 1.387, 1.587, and 1.96 billion yuan (the original forecast values for 2024, 2025, and 2026 were 1.746, 2.136, and 2.69 billion yuan, respectively), and the company's net profit to mother for 2024, 2025, and 2026 is 0.008, 0.034, and 0.087 billion yuan, respectively (2024, 2025, and 2026 original forecast values are 0.074, 0.146, 0.235 billion yuan), and the current market value corresponding to 2024, 2025, and 2026 PE is 519, 120, and 46 times. The profit forecast maintains an “gain” rating.

Risk warning: 1) Downstream demand recovery falls short of expectations; 2) capacity expansion falls short of expectations; 3) customer imports fall short of expectations.