Shenwan Hongyuan Group: AI and semiconductor dual engine drive, electronic industry Q2 net profit year-on-year increases by 42%.

Shenwan Hongyuan Group's research report stated that the revenue of the electronics industry in 2Q24 increased by 17.50% year-on-year, with growth far exceeding that of other industries, and the net profit attributable to the mother increased by 41.70% year-on-year. In 2Q24, the revenue of all 15 sub-sectors of the electronics industry increased year-on-year, with 13 of them achieving double-digit growth. The revenue growth of semiconductor equipment, PCB, optical components, packaging and testing, electronic chemicals, and consumer electronic components exceeded 20%. Consumer electronics showed positive signs of recovery, with demand being weak but steady. It is optimistic about the peak season for the supply chain in the second half of the year and the continued prosperity of the AI terminal industry next year. The revenue of the electronics industry in 2Q24 increased by 17.50% year-on-year, with growth far exceeding that of other industries, and the net profit attributable to the mother increased by 41.70% year-on-year. In terms of revenue growth in 2Q24, the electronics industry ranked first in the industry, and the net profit attributable to the parent company ranked third in year-on-year growth. In terms of single-quarter performance growth, 2Q24 continued the growth trend of revenue and profit in the first quarter of this year, further moving away from the year-on-year decline seen in multiple quarters in the past. In terms of revenue, the growth rate turned positive in 4Q23, increasing by 3.6% year-on-year, and increased by 18% year-on-year in 2Q24, achieving double-digit year-on-year growth for two consecutive quarters. The net profit growth rate per quarter turned positive from 1Q24, increasing by 75% year-on-year, and the net profit attributable to the parent company increased by 41.70% year-on-year in Q2. Review of performance of various sectors in the electronics industry in 2Q24: In terms of revenue, the majority of sub-sectors achieved growth for multiple consecutive quarters, and there was a significant differentiation in non-GAAP net profit for sub-sectors. The revenue of all 15 sub-sectors of the electronics industry in 2Q24 increased year-on-year, with 13 of them achieving double-digit growth, with revenue growth of over 20% in the sub-sectors of semiconductor equipment, PCB, optical components, packaging and testing, electronic chemicals, and consumer electronic components. There was significant differentiation in non-GAAP net profit for sub-sectors in 2Q24. Among them, the sub-sectors of discrete devices, semiconductor equipment, packaging and testing, digital chips, analog chips, PCB, passive components, and electronic chemicals all achieved year-on-year net profit growth after adjustments, while the sectors of materials, manufacturing, LED, branded consumer electronics, component manufacturers, and assemblers posted year-on-year declines, and the panel and optical components sectors returned to profit. All sub-sectors of the semiconductor industry achieved double-digit year-on-year revenue growth in 2Q24, with year-on-year growth rates of 38%, 24%, and 19% for semiconductor equipment/packaging and testing/manufacturing, respectively. In the semiconductor equipment sector, performance continued to grow rapidly in Q2 24, with increased research and development investment affecting profitability; the landing of the third phase of the large fund is expected to accelerate the pace of advanced process capacity expansion. Wafer foundry: on the demand side, as low- and mid-range consumer electronics gradually recover, from design companies to end manufacturers, there is a higher willingness to build up inventory; on the other hand, influenced by geopolitics, there is an accelerated increase in localized demand. Storage: After experiencing cyclical fluctuations in the global semiconductor industry, it is gradually beginning to recover. Packaging and testing: The semiconductor packaging and testing sector saw revenue and non-GAAP profits recover from the fourth quarter of 23. In the second quarter, major packaging companies' capital expenditure rebounded, as evident by the prominent customer attributes of top domestic companies in the downstream sector, and the need to focus on consumer electronic AI and North American computing power. Consumer electronics showed positive signs of recovery, with weak but steady demand. In the consumer electronics sector, revenue has maintained high year-on-year growth for five consecutive quarters, with revenue growth of 16% year-on-year in 2Q24. After consecutively high year-on-year growth for four quarters in non-GAAP profit, it declined by 8% year-on-year for the first time in the second quarter of this year. Several consumer electronics companies showed significant growth in the first half of the year, with Xiaomi Group and Shenzhen Transsion Holdings Co., Ltd. exhibiting growth rates above the industry average. It is optimistic about the peak season for the supply chain in the second half of the year and the continued prosperity of the AI terminal industry next year. Panel: The acceleration of the exit and transformation of Korean and Japanese factories in the second half of the year brings opportunities for integration. Historically, the restructuring and shutdown of capacity by Japanese and Korean panel manufacturers, as well as cautious investments by Taiwanese factories, indirectly increased the production capacity share of mainland Chinese panel manufacturers globally. Passive components sector: the operating rate of the MLCC industry is expected to continue to rise, with a focus on follow-up new orders and terminal demand. Investment analysis opinions: 1) Recovery in memory chip prices: Shenzhen Techwinsemi Technology(001309.SZ), Shenzhen Longsys Electronics(301308.SZ), Giantec Semiconductor Corporation(688123.SH); 2) Semiconductor equipment: NAURA Technology Group(002371.SZ), Advanced Micro-Fabrication Equipment Inc. China(688012.SH), Kingsemi Co., Ltd.(688037.SH), Piotech Inc.(688075.SH), Skyverse Technology(688223.SH), etc.; 3) Dual mainlines of LCD and OLED: Boe Technology Group(000725.SZ), Tianma Microelectronics(000050.SZ), Jilin Oled Material Tech(300965.SZ), Shenzhen Sunnypol Optoelectronics(002876.SZ), Jadard Technology Inc.(688215.SH), Wuhan Jingce Electronic Group(300567.SZ)(Mechanical Group), Suzhou HYC Technology(300724.SZ); 4) AI chip and AI server industry chain: Foxconn Industrial Internet(601138.SH), Wus Printed Circuit(002463.SZ), Shennan Circuits(002916.SZ), MontagTechnology(688008.SH) and others; 5) Apple industry chain: Luxshare Precision Industry(002475.SZ), Lens Technology(300433.SZ), Shenzhen United Winners Laser Co., Ltd(688518.SH), Lingyi Itech(002600.SZ), Zhejiang Lante Optics(688127.SH), Goertek Inc.(002241.SZ) and others; 6) Huawei industry chain: Visionox Technology Inc.(002387.SZ), Maxic Technology, Inc.(688433.SH), Sitwe(688213.SH), Will Semiconductor(603501.SH); 7) Components: Zhejiang Jiemei Electronic And Technology(002859.SZ) and others.Risk Warning: Demand recovery is below expectations, the acceptance of AI new features by users is below expectations, and the progress of semiconductor factories expansion is below expectations, and so on.