The semiconductor and product integration business is flying hand in hand, and operations are expected to bottom out and rebound after the trough period has passed. The company was founded in 2006 and has now become the world's leading semiconductor and product integration enterprise integrating R&D, design, and manufacturing. The company started in the product integration business. In 2019, it successfully merged and acquired Dutch semiconductor giant Anshi Group, integrating the entire industry chain link such as chip design, wafer manufacturing, and package testing, and successfully entered the semiconductor circuit to become an internationally competitive power semiconductor company. Weak terminal demand compounded the peak investment period from 2022 to 2023, and the company's profitability was under pressure. Since the second quarter of 2024, the market bottomed out. Combined with the rapid development of the company's semiconductor business in the domestic automobile market at the operational level, and the continuous cost reduction and efficiency of the product integration business, profitability improved substantially. With the further focus on business layout and continuous strengthening of production and operation management, the company's performance is expected to improve in trend.

The automotive semiconductor cycle is bottoming+the Lingang plant continues to climb, and high-quality assets are crossing the bull and bear. According to Omdia data and forecasts, the global power semiconductor market will be about 50.3 billion US dollars in 2023. China is the world's largest consumer of power semiconductors, accounting for 40% of the global market. Inventory adjustments in the automotive sector prompted power semiconductors to gradually bottom out and rebound in 24Q2, customer procurement intentions picked up, and the inventory removal process was smooth. Anshi Semiconductor is the leading global automotive semiconductor business platform. As a leading global automotive semiconductor company, the company's product number is nearly 0.016 million. It has established long-term and stable deep cooperative relationships with the world's major automotive manufacturers, Tier 1 manufacturers, and well-known enterprises in various industries such as power grids, electricity, communications, and consumer industries, and has international competitiveness.

Reviewing Anshi's business performance in the past cycle, during the downturn in the industry, the company still has excellent performance backstopping capabilities. It is expected to show strong performance flexibility by crossing the bull and bear, then entering the inventory replenishment cycle, and superimposing domestic vehicle regulation power semiconductor supplier certification. Dingtai Craftsmanship is a 12-inch automotive-grade power semiconductor automated wafer manufacturing center project invested by Wentianxia, the controlling shareholder of the company. It is expected to produce about 0.36 million 12-inch power device wafers per year after delivery. Currently, production capacity continues to climb and pass key customer certification, becoming an important OEM capacity supplement for Wentai Anshi. At the same time, the company enjoys priority transfer rights for this fab, and industrial collaboration is expected to advance further.

The strategy focuses on high-quality customers, and the product integration business is expected to turn losses into profits. After 22-23 years of downturn in the industry and a period of high investment expansion, the company's profitability was temporarily under pressure. In 2024, the company will continue to promote strategic focus and cost reduction and efficiency: 1) Actively serve customers with high-value products, and smooth introduction and mass production of new projects.

New phones/tablet projects in collaboration with leading Android customers have been successfully launched, and major price increase measures have now begun, and the volume and price are expected to rise rapidly. At the same time, AI PCs produced in cooperation with specific customers have been sold and rapidly increased in 24Q2, and next-generation projects are being promoted in cooperation. 2) Actively controlling costs and improving manufacturing and operating efficiency, etc., to achieve an increase in gross margin. (3) Strengthen internal management to reduce costs and reduce loss-making projects to improve management efficiency. More measures have been taken to improve the quality of operations, compounded by a recovery in terminal demand, substantial improvements in profitability, and are expected to break out of the trend and turn losses into profits.

Investment advice: Through “endogenous+epitaxial” growth, the company has grown into one of the largest ODM and power device manufacturers in China. According to the 2014 three-quarter report, the forecast for the company's 24-26 net profit to mother was adjusted to 0.865/3.207/4.005 billion yuan (original value 1.537/2.449/3.046 billion yuan), and the corresponding EPS was 0.70/2.58/3.22 yuan (original value 1.24/1.97/2.45 yuan). Considering the company's industry position and asset quality, reference the industry's comparable company valuation, and give 30 times PE in 2025, corresponding to a target price of 77.4 yuan, maintaining the “strong” rating .

Risk warning: Changes in the external trade environment may cause uncertainty; downstream demand falls short of expectations; progress in expanding new products and new fields falls short of expectations; increased industry competition; risk of impairment of goodwill.