Event: Shannon Xinchuang released its third quarterly report of 2022. In the first three quarters of 2022, the company realized operating income of 10.768 billion yuan (year-on-year + 132.20%), net profit of 155 million yuan (+ 10.47%) and net profit of 157 million yuan (+ 79.64%). The growth of the company's performance in the first three quarters is mainly due to the consolidation of its subsidiary United Chuangtai since July 2021. In the third quarter of 2022, the company achieved operating income of 2.122 billion yuan (year-on-year-52.74%, month-on-month-56.52%), net profit of-9.48 million yuan and non-return net profit of 7.78 million yuan. The decline in the company's performance in the third quarter is mainly due to: 1) the slowdown in memory demand and prices in the third quarter, resulting in a decline in revenue and profits in the company's semiconductor distribution sector. 2) the capital market fluctuated greatly in the third quarter, which led to the decrease of the fair value of some shares held by the company.
Semiconductor distribution business: the periodic decline in performance does not change the company's long-term growth. At present, the overall semiconductor industry downward cycle, the company's semiconductor distribution business is under pressure in stages, but in the long run, it benefits from national policy support and the continuous enrichment of data center application scenarios, coupled with the digital transformation to a long-term and systematic trend, and the company's downstream customers include BABA, Zhongba Group, Byte Jump, Huaqin Communications and other Internet leading manufacturers and domestic large ODM enterprises. The overall purchasing demand for the company's memory is still continuous, rigid and stable, and we believe that the overall semiconductor downward cycle is expected to bottom out in the second half of 2023, and the performance of the company's semiconductor distribution business is expected to recover.
The company is gradually building a high-end semiconductor industry chain innovation ecology. Lianchuangtai, a wholly owned subsidiary of the company, is the leading electronic components distribution platform in China, which provides demand matching, inventory buffering and information value for the whole industry, and maintains good cooperative relations with upper and lower tourist customers; the participating companies Haoda Electronics, Yongsi Electronics, Microconductor Nano and Bishi Technology are also excellent enterprises in various sub-fields. The company's investment layout in the semiconductor field covers from upstream materials, design, manufacturing to downstream application, consumption and other links, the company has gradually built a virtuous cycle ecosystem, effectively promote the wide flow of knowledge, information and capital in the industrial chain.
Profit forecast and investment advice: in the short term, the company's semiconductor distribution business profits are under pressure, but with the gradual bottoming out of the overall semiconductor downward cycle, the company's semiconductor distribution business performance is expected to recover, and in the long run, the company is gradually building the innovation ecology of the high-end semiconductor industry chain. It is estimated that the company's operating income from 2022 to 2024 will be 13.952 billion yuan, 15.974 billion yuan and 19.721 billion yuan respectively, an increase of 51.55%, 14.49% and 23.46% over the same period last year. The net profit from 2022 to 2024 is 274 million yuan (excluding the investment income from Ningbo Yongsi listed on November 16, if this income is taken into account, the net profit is expected to reach about 350 million yuan), 309 million yuan and 337 million yuan, respectively, an increase of 22.44%, 12.62% and 9.28% over the same period last year. From 2022 to 2024, the EPS was 0.65,0.74 and 0.80 yuan respectively, and the corresponding PE of the current stock price was 26.4x, 23.1x and 21.4x respectively, giving the company an "overweight" rating.
Risk tips: memory prices fall more than expected, etc.