Incident: The company announced its 2024 three-quarter report, achieving operating income of 2.171 billion US dollars, an increase of 14.2% month-on-month, reaching a record high of 2 billion US dollars in a single quarter; net profit to mother of 0.149 billion US dollars, up 58.3% year on year; gross profit margin of 20.5%, up 6.6 pcts month over month. The gross margin performance was superior to the second quarter guidance (18%-20%), and revenue was in line with the second quarter announcement range.

Key points of investment:

The operating rate continued to recover in 24Q3, and ASP rebounded sharply. According to the Hong Kong stock announcement, the company's overall operating rate in 24Q3 was 90.4%, up 5.2 pcts compared with 24Q2. The wafer delivery volume was 2122K, QoQ +0.5%, and YoY +38.1%. The average sales unit price increased 13.6% to $1,023 per piece due to changes in the product portfolio. The company's monthly production capacity for 8-inch wafers continued to increase from 837K/M in 24Q2 to 884.25K/M in 24Q3, increasing 12-inch production capacity equivalent to 21K/M in the third quarter, promoting further optimization of the company's product structure and increasing the average sales unit price.

Consumer electronics are clearly driving, and the share of European and American customers who have finished picking up goods has declined slightly. According to the Hong Kong stock announcement, in terms of downstream share, smartphone revenue accounted for 24.9% (QoQ-7.1pct); computer and tablet revenue accounted for 16.4% (QoQ+3.1 pct); consumer electronics revenue accounted for 42.6% (QoQ+7pct); connectivity and wearables accounted for 8.2% (QoQ-2.8pct); and industry and automotive revenue accounted for 7.9% (QoQ-0.2pct). By region, China accounted for 86.4% of revenue (QoQ+6.1pct), the US region was 10.6% (QoQ-5.4pct), and Eurasia accounted for 3% (QoQ-0.7pct).

The rapid decline in the share of US customers is mainly due to the fact that some overseas customers established inventory in Q2, so they picked up goods to a certain extent ahead of schedule, and some of the goods in the second half of the year were pulled out in the first half of the year. According to the wafer structure, the company's 8-inch wafers account for 21.5% of sales revenue (QoQ-4.9pct), and 12-inch wafers account for 78.5% (QoQ+4.9pct). We judge that the large increase in the company's unit price is related to the increase in the revenue ratio of the higher ASP 12-inch wafers.

Depreciation and amortization continued to rise, and capital expenditure remained high. According to the Hong Kong stock announcement, 24Q3 depreciation and amortization costs were USD 0.831 billion, YoY +22.3%, QoQ +4.3%; capital expenditure for 24Q3 was USD 1.18 billion, and 24Q2 was USD 2.25 billion. Compared with the slowdown in Q2, R&D expenditure was USD 0.179 billion.

Positive guidance continued in the fourth quarter. According to the Hong Kong stock announcement, the company's 24Q4 revenue remained flat to 2% month-on-month, corresponding to revenue between 2.171-2.214 billion US dollars, and gross margin between 18% and 20%. The company's Q2 guidelines are that, on the premise that there are no major changes in the external environment, the target sales revenue can exceed the average of comparable peers, and sales revenue in the second half of the year can exceed the first half of the year.

Adjust profit forecasts to maintain a “buy” rating. According to the company's Hong Kong stock third quarter results and fourth quarter guidance, and changes in the company's share capital, we adjusted the company's net profit forecast for 2024-2026 to 4.346/5.564/6.965 billion yuan (originally 4.296/5.506/6.678 billion), corresponding to the 2024-2026 A share price PE of 187/146/117X, maintaining a “buy” rating.

Risk warning: downstream demand falls short of expectations; advanced process R&D falls short of expectations; production capacity release falls short of expectations.