In 2024, the revenue will increase by 40.04% year-on-year, and the net profit attributable to the parent company will increase by 149.13% year-on-year. The company released its 2024 annual report, achieving annual operating income of 2.007 billion yuan, an increase of 40.04% year-on-year; the net profit attributable to the parent company was 339 million yuan, an increase of 149.13% year-on-year; deducted non-net profit of 308 million yuan, an increase of 182.77% year-on-year. The

revenue growth was mainly due to the continuous improvement of the penetration rate of digitalization and intelligence in downstream industries, as well as the gradual increase in the number of new potential customers in the past two years.

The emerging application market is growing rapidly, and the gross profit margin in 4Q has further improved. In terms of business, the company's chip revenue was 783 million (YoY +43.04%), module revenue was 1.208 billion (YoY +38.69%), and the total annual sales of chips and modules were 253 million (YoY +35.87%). From the perspective of applications, core applications such as smart home, smart lighting, and consumer electronics will grow by more than 30% in 2024, while emerging application markets such as energy management, tools and equipment, and big health will be more prominent, all showing rapid growth. In 2024, the impact of equity incentive expenses on net profit will be about 37.6613 million yuan, and R&D expenses will reach 490 million yuan in 24 years (YoY +21.45%). In terms of gross profit margin, the gross profit margin further improved to 46.85% (QoQ +4.71pp) in the fourth quarter, and the gross profit margin of chips and modules hit a new high in recent years.

Equity incentives mobilize the enthusiasm of employees, and the fixed increase plan deploys Wi-Fi 7 and AP. The company released the draft equity incentive in 2025, which intends to grant 1.073 million restricted shares to 192 incentive recipients, and the performance assessment target is that the revenue target from 2025 to 2028 will reach 24/28.8/34.6/4.15 billion yuan respectively, or the compound annual growth rate is higher than the average of 3 comparable companies in the same industry. At the beginning of each year, the company formulates equity incentives for the current year to fully mobilize the enthusiasm of employees, and the annualized revenue growth target for the next four years is 20%, reflecting the company's long-term growth confidence.

In addition, the company plans to issue shares to specific targets to raise no more than 1.78 billion yuan, of which 400 million yuan will be used for the Wi-Fi 7 router chip project, 250 million yuan for the Wi-Fi 7 smart terminal chip project, 430 million yuan for the RISC-V AI end-side chip project, 600 million yuan for the Shanghai R&D center, and 100 million yuan for replenishment. Current mainstream Wi-Fi 7 such as Qualcomm FastConnect and MediaTek Filogic series all use 6/12nm advanced manufacturing processes. Espressif is deeply engaged in 40nm Wi-Fi MCUs and SoCs, and with this private placement, the company is expected to advance advanced process projects.

Investment Recommendation: Maintain "Outperform" rating. We are optimistic about the company's competitiveness and leading edge in the field of WiFi MCUs and SoCs, and the layout of WiFi7 and AP will further improve the company's product matrix. The growth of the global developer community will further enhance the impact of the company's products. We expect the company's net profit attributable to the parent company to be 4.82/616 million yuan in 2025-2026 (the previous value is 4.32/514 million yuan), and the net profit attributable to the parent company in 2027 is expected to be 799 million yuan, and the corresponding PE of the current stock price is 50.3/39.4/30.4 times respectively, maintaining the "better than the market" rating.

Risk warning: the risk of intensifying competition in the industry; the risk of rising prices for raw material purchases; the risk that the progress of product development is not as expected; exchange rate fluctuation risk, etc.