The results were in line with the forecast, and the non-net profit and interconnection revenue in Q2 both hit new quarterly highs.

1) 24H1: revenue of 1.665 billion yuan, yoy + 79%, net profit attributable to the parent company of 593 million yuan, yoy + 625%, deduction of non-544 million yuan, yoy + 14178%, non-recurring profit and loss of 49 million yuan, of which government subsidies of 72 million yuan and fair value changes of financial assets -38 million yuan. The gross profit margin was 57.78%, YOY+1.5pcts, and the net profit margin was 35.63%, YOY+26.8pcts. The company previously announced that the revenue in 24H1 was 1.665 billion yuan, and the net profit attributable to the parent company was 583-623 million yuan, deducting 535-565 million yuan, which was actually in line with the forecast.

2) 24Q2: revenue of 928 million yuan, yoy+83%, qoq+26%, net profit attributable to the parent company of 370 million yuan, yoy+495%, qoq+66%, deduction of non-325 million yuan, yoy+9133%, qoq+48%, gross profit margin 57.83%, yoy-1.0pcts, qoq+0.1pcts, net profit margin 39.86%, yoy+27.6pcts, qoq+9.6pcts, Deduct 35% non-net profit margin, QoQ+5.2pcts.

3) 24Q2 revenue composition: interconnection chips/Jintide server platform accounted for 90%/10%, interconnection chip revenue of 830 million yuan, qoq + 20%, gross profit margin 64%, qoq + 3pcts, Jindai server CPU revenue of 90 million yuan, qoq + 133%, gross profit margin of 7%, qoq + 2pcts. Among the interconnection chips, the total revenue of the three new products MRCD/MDB, CKD, AND PCIe5.0 Retimer in Q2 was about 130 million yuan, doubling from the previous month, accounting for 16% of the revenue of interconnection chips.

4) Expense ratio: The absolute amount of the company's sales expenses and management expenses in 24Q2 was relatively stable month-on-month, and the R&D expenses in 24Q2 increased by about 10 million month-on-month. From the perspective of expense ratio, Q2 sales expense rate is 2.35%, yoy-2.5pcts, qoq-0.6pcts, management expense rate is 4.29%, yoy-5.2pcts, qoq-1.1pcts, R&D expense rate is 20.55%, yoy-12.6pcts, qoq-3.3pcts, and the total expense rate of the three fees is 27.19%. QoQ-5.0pcts, due to the overall expenses were relatively stable and rigid quarter-on-quarter, due to the increase in revenue quarter-on-quarter, the expense ratio decreased significantly quarter-on-quarter.

Revenue: The company's main revenue and profit are mainly contributed by interconnection chips, and the revenue of interconnection chips hit a new high in Q2, mainly due to DDR5 penetration and child iteration + the volume of three new AI products. It is expected that as DDR5 continues to penetrate and new products continue to increase, the company's revenue is expected to continue to increase.

Profitability: The company's Q2 non-net profit reached a record high, on the one hand, due to the record revenue of interconnection chips in the high-gross margin product line, and on the other hand, the company's profitability increased mainly due to the decline in expense ratio, which led to a 2pcts quarter-on-quarter increase in Q2 non-net profit margin.

DDR5 related products: The DDR5 penetration rate is expected to be 50%+ in 24 years, and the new MRCD/MDB and CKD will increase rapidly in 24 years.

1) DDR5 penetration rate and child upgrades: DDR5 interface chip shipments in 24Q3 exceeded DDR4.

The DDR5 penetration rate is expected to exceed 50% by mid-2024, and AI servers and AI PC memory modules will directly use DDR5 products to accelerate DDR5 penetration. At present, DDR5 is planned to have 5 sub-generations, following CPU iterations, memory interface chips need to be upgraded, memory interface chips are mainly used for servers, and on the server side, Intel supports the third sub-generation CPU platform Sierra Forest has been launched in June 2024. Montage 24H1 2nd Generation RCD Shipments Exceed the First Child Generation, the Third Child Generation is expected to start large-scale shipments in 24H2, the fourth Child Generation product has been launched in January 24, and the fifth Child Generation RCD R&D has been launched. In addition, the company expects DDR5 interface chip shipments to exceed DDR4 interface chips in 24Q3.

With the upgrade from DDR4 to DDR5, there are two major trends in memory interconnect products: (1) DDR5 memory modules are newly designed, and the number of memory module supporting chips has increased significantly. (2) The transmission speed of DDR5 data continues to increase, and MRDIMM is added to the server, CUDIMM/CSODIMM is added to the PC, and new interface chips MRCD/MDB/CKD are used.

2) From DDR4 to DDR5, the volume and price of traditional memory module interconnection chips have risen:

(1) Server: traditional memory module RDIMM/LRDIMM, LRDIMD penetration rate is less than 10%. DDR4 generation RDIMM requires 1 RCD + 1 SPD, LRDIMM adds 9 DB on this basis, DDR5 generation RDIMM requires 1 RCD + 1 SPD + 1 PMIC + 2 TS, LRDIMM adds 10 DB on this basis, and the type and usage of memory module supporting chips have increased significantly.

(2) PC: Desktops mainly use memory module UDIMM, notebook computers use about 50% of on-board memory LPDDR, and 50% use memory module SODIMM. DDR4 generation UDIMM/SODIMM requires 1 SPD, DDR5 generation requires 1 SPD + 1 PMIC, and the amount of memory module supporting chips is increased. Montage has full coverage of products and leading market share.

3) DDR5 transmission speed is improved, and new modules bring new opportunities for memory interface chips:

(1) The server has added MRDIMM modules, corresponding to Montage's new MRCD/MDB:

DDR5 generation will launch a memory module with a speed of 8800MT/s, which will use 1 MRCD + 10 MDB, which is a new increment, and Intel supports MRDIMMCPU platform Granite Rapdis is expected to be 24Q3 Launch.

In 2024Q1, Montage's quarterly sales exceeded RMB 20 million for the first time, and in 24Q2, revenue exceeded 50 million, doubling QoQ.

(2) CUDIMM/CSODIMM/CAMM2 modules are added to the PC, bringing new increments of CKD

　　　 Traditional PC memory modules UDIMM/SODIMM are not suitable for memory interface chips for data buffering, but when the DDR5 transfer rate is 6400MT/s and above (DDR5 third generation and above), CUDIMM/CSODIMM is used, 1 simplified memory interface chip CKD is used, and the Intel CPU platform Arrow Lake of this product is expected to be released on October 10 this year. In addition, at the end of 23 years, JEDEC clarified the CAMM2 memory module standard, CAMM2 can have both the high-speed and low-power consumption of LPDDR and the pluggable and upgradeable of SODIMM, and JEDEC clarified that DDR6 generation CAMM2 replaces SODIMM, CAMM2 needs 1 SPD+1 PMIC+1 CKD, and LPCAMM2 needs 1 SPD+1 PMIC.

Montage was the first in the industry to conduct trial production of CKD, and began large-scale shipments in 24Q2, with a single-quarter revenue of more than 10 million yuan in Q2.

Non-DDR5 memory module related products: PCIe 5.0 Retimer 24 years fast scale-up.

1) PCIe5.0 Retimer: The PCIe Retimer chip solves the problem of signal attenuation, and is mainly used for the interconnection of high-speed peripherals such as CPUs and GPUs, SSDs, network cards, etc., and a mainstream AI server with a typical configuration of 8 GPUs requires 8 or 16 servers. In January 2023, Montage became the world's second mass production supplier, with 150,000 units shipped in 24Q1, more than 1.5 times the annual shipment volume in 2023, and 300,000 units shipped in 24Q2, doubling the shipment volume month-on-month, significantly increasing its market share. According to the company's orders as of July 22, 2024, it is expected that about 600,000 PCIe Retimer chips will be delivered in 24Q3, a further significant increase from the previous month.

2) CXL MXC chip: used for memory expansion and memory pooling, in May 2022, the company launched the world's first CXL MXC chip, leading the world in technology, and in 2023, it became the world's first MXC chip manufacturer to enter the CXL compliant supplier list, and in May 2023, Samsung launched the first 128GB DRAM that supports CXL2.0, using the company's MXC chip.

Investment suggestion: The company is the global leader in memory interface chips, DDR5 accelerated penetration, MRCD\MDB\CKD\PCIe5.0 Retimer\MXC chips and other new products to open up growth space, 24 years MRCD\MDB, CKD, PCIe5.0 Retimer has entered the harvest period, the company as a core capacity provider in the AI era shines. Montage Technology's net profit in 2024-2026 is expected to be 15/25/3.1 billion yuan, and the corresponding PE valuation is 51/30/24 times, maintaining a "buy" rating

Risk Warning Event: Server and PC shipments are lower than expected; the risk that the penetration of MRDIMM, CUDIMM, CSODIMM and PCI5.0 Retimer is less than expected; The penetration of ARM architecture into PCs and servers leads to the risk that memory module demand is lower than expected; the risk of deterioration of the competitive landscape of the track market in which the company operates; the risk of lag in the information on which it is based, etc.