Events:

1) The company's Hong Kong stock announced the 2024 quarterly report, achieving operating income of US$2.207 billion, an increase of 1.7% quarter-on-quarter, exceeding US$2 billion for the second consecutive quarter, a record high; net profit attributable to the parent company was US$493 million, a year-on-year decrease of 45.4%, mainly due to the decline in investment income and capital income; The gross profit margin was 22.6%, an increase of 2.1pcts quarter-on-quarter, and the company's gross margin performance was better than the third-quarter guidance (18%-20%), and the revenue was in line with the third-quarter announcement guidance range. For the full year of 2024, the company's sales revenue will be US$8.03 billion, YoY +27%, and the gross margin will be 18%.

2) The company's A-share released its 2024 annual report, achieving operating income of 15.917 billion yuan, a year-on-year increase of 31%, and a gross profit margin of 21.1%.

In 2024, the annual revenue will be 57.796 billion yuan, a year-on-year increase of 27.7%, and the net profit attributable to the parent company will be 3.699 billion yuan, a year-on-year decrease of 23.3%; The net profit after deduction was 2.646 billion yuan, down 19.1% year-on-year.

Investment Highlights:

The utilization rate remained high in 24Q4, and ASP rebounded sharply for the second consecutive quarter. According to the announcement of Hong Kong stocks, the company's overall utilization rate in 24Q4 was 85.5%, a decrease of 4.9pct compared with 24Q3, wafer delivery volume was 1991.8K, QoQ was -6.1%, YoY +18.9%, and the average selling unit price increased by 8.3% to $1108/piece due to product mix changes. In 2024, the company will ship more than 8 million pieces, with an average annual capacity utilization rate of 85.6%. The company's monthly production capacity of 8-inch wafers continued to increase from 884.25K/M in 24Q3 to 947.625K/M in 24Q3, and increased the 12-inch production capacity equivalent to 28K/M in the fourth quarter, which promoted the further optimization of the company's product structure and increased the average selling unit price.

Consumer electronics continued to boom, and the proportion of computers and tablets increased. According to the announcement of Hong Kong stocks, in the downstream, smartphone revenue accounted for 24.2%, QoQ-0.7pct, computer and tablet revenue accounted for 19.1%, QoQ+2.7pct; Consumer electronics revenue accounted for 40.2%, QoQ-2.4pct, connected and wearable revenue accounted for 8.3%, QoQ+0.1pct; Industrial & Automotive revenue accounted for 8.2%, QoQ +0.3pct. By region, China accounted for 89.1% of revenue, QoQ+2.7pct, the United States 8.9%, QoQ-1.7pct, and Eurasia 2%, QoQ-1pct. The rapid decline in the proportion of U.S. customers is mainly due to the fact that some overseas customers have established inventory in Q2, so they have carried out a certain degree of pulling goods in advance. According to the wafer structure, the company's 8-inch wafer sales revenue accounted for 19.4% (QoQ-2.1pct), and 12-inch wafer revenue accounted for 80.6% (QoQ+2.1pct).

Positive guidance for the first quarter, maintaining high capex intensity. The company's 25Q1 guidance sales revenue is 2.34-2.38 billion US dollars, QoQ+6%~+8%; The gross profit margin is about 19-21%, and the sales revenue growth rate in 2025 is higher than the average of comparable companies.

The company's capital expenditure in 2024 was US$7.33 billion, guiding 2025 capital expenditure to be broadly in line with 2024.

Adjusted earnings forecasts and maintained "buy" rating. According to the company's A-share performance forecast and the changes in the company's share capital, we adjust the company's 2024-2026 net profit attributable to the parent company forecast to 36.99/60.55/7.544 billion yuan (the original 43.46/55.64/6.965 billion yuan), corresponding to the 2024-2026 A-share share price PE of 214/131/105X, the company's advanced process premium continues, and maintain a "buy" rating.

Risk warning: downstream demand is less than expected; The research and development of advanced processes is less than expected; The pace of capacity release is less than expected.