2Q24: downstream demand on the mend, profit improved
Giantec Semiconductor’s 2Q24 revenue was RMB267mn (+54.02% yoy, +8.18% qoq), a record high for the same period since its listing, with attributable net profit (NP)/recurring attributable NP at RMB92/79mn (+118.24/180.25% yoy, +79.82/ 19.06% qoq). In 1H24, with downstream demand on the mend and promotion of new products, SPD, NOR Flash and auto EEPROM shipments jumped yoy, and sales of industrial EEPROM and voice coil motor driver chips grew rapidly. In 2Q24, both GPM and expenses were stable, while net gains from fair value changes reached RMB11.26mn (mainly from Hua Hong’s strategic private placement), driving its attributable NPM up 13.68pp qoq to 34.35%. We project its 2024/2025 /2026 attributable NP at RMB365/529/729mn, and value the stock at 33x 2024E PE, below its peers’ average of 38x on Wind consensus, as it still takes time for new products to generate revenue. Our target price is RMB75.9. Maintain BUY.
DDR5 SPD sales rose qoq, NOR sales more than doubled qoq
In 2Q24, Giantec’s revenue rose by high single-digit qoq, driven by a qoq rise in DDR5 SPD shipments amid improved DDR5 penetration, while dull Android phone demand dented revenue from related EEPROM and voice coil motor driver chips. Notably, NOR Flash shipments (>113mn pieces) more than doubled qoq in 2Q24, mainly applied in e-cigarettes, TWS Bluetooth headsets, AMOLED mobile phone screens and PLC components. With stable costs and ASPs, overall GPM was 54.77% in 2Q24 (vs 54.52% in 1Q24), adding in a drop in R&D expense ratio (16.14%), boosting attributable/recurring NPM to 34.35/29.43%. Inventory was RMB220mn by end-2Q24, (vs RMB219mn at end-1Q24), and inventory turnover days (172 days) fell back to the 2022 level.
Outlook for 2024: SPD sales stellar, NOR a new profit growth driver
We see continued sales ramp-ups for new products. 1) We expect SPD shipment qoq for 3Q24 to remain stable driven by rising DDR5 penetration and uptick in demand for general-purpose servers in 2H24. 2) Giantec now mainly sells small- capacity NOR Flash products. We expect it to improve the layout of medium and large-capacity products in 2H24, gaining market share on NORD process edges, thereby creating NOR into a new profit growth driver. 3) Auto EEPROM continues to expand footprint among global clients. Certain OIS VCM drivers have passed smart phone vendors’ verifications, boding well for sales uptick in 2024, in our view.
Investment advice: target price of RMB75.9, maintain BUY
We think rising SPD sales driven by DDR5 penetration improvements remains a key highlight in the short term, and NOR Flash may become a new profit growth driver in the long term, albeit with soft profitability at present. We value the stock at 33x 2024E PE, for our target price of RMB75.9 (previous: RMB75.3). BUY.
Risks: lower DDR5 penetration; fiercer competition; slow new product promotion.