Key points of investment

The company released its 2022 annual report, and the annual performance growth was due to factors such as a continued rich product matrix and continued growth in customer demand. Annual revenue was 1,042 million yuan, an increase of 53.57%; net profit of the mother was 0.6 billion yuan, after deducting the net profit of the non-return mother was 0.07 billion yuan, turning a loss into a profit; the gross profit margin was 39.81%, an increase of 3.57 pcts. Q4 2022 achieved revenue of 245 million yuan, an increase of 33.62% over the same period, a decrease of 12.94%; net profit of the mother returned to the mother was 0.2 billion yuan; net profit of the non-return mother was -25 million yuan.

At the same time, the company released its report for the first quarter of 2023. Q1 of 2023 achieved revenue of 188 million yuan, down 27.38% from the same period, or 23.36% from the previous month; net profit of Guimo was 501 million yuan; net profit after deducting non-return mother's net profit was -57 million yuan. The decline in revenue was mainly due to fluctuations in market demand, which led to a decline in shipments of mature products, while new products were still in the introduction stage and contributed less to revenue. The decline in revenue was accompanied by a sharp decrease in profit from R&D investment compared to the same period last year.

Continuously increasing investment in R&D, the new product is expected to achieve continuous increase in R&D investment by large-scale sales companies in 23H2, and talent pool construction will be carried out in an orderly manner. In 2022, R&D expenses reached 332 million yuan, an increase of 36.15%, accounting for 31.83% of total revenue; the number of R&D personnel reached 328, an increase of 23.31%, accounting for 80.39% of the total number. The 23Q1 company continued to strengthen R&D. Large R&D investments such as streaming film costs were confirmed. R&D expenses reached 106 million yuan, an increase of 49.31%, accounting for 56.64% of first-quarter revenue, an increase of 29.09 pcts.

The company has built a product matrix composed of the three families of FPGA chips from ELF, EAGLE, and PHOENIX, FPSoC series chips, and special EDA software for the TangDynasty series, forming a full product line coverage of FPGA chips and software at various logical scales. In 2022, the company added 6 new products, including 2 automotive-grade FPGA chips, which are expected to achieve large-scale sales in 23H2.

The core of FPGA is developing steadily. The company's FPGA products have three categories of high performance, EAGLE high efficiency, and ELF low power consumption, which can be applied to industrial communications, network communications, data centers, consumer electronics, automotive electronics, and other fields with low replacement space. In 2022, the business achieved revenue of 999 million yuan, an increase of 53.96%; accounting for 94.9% of total revenue; gross profit margin was 39.13%, an increase of 4.94 pcts. According to Frost&Sullivan's forecast, FPGA chip sales in the Chinese market will reach 33.22 billion yuan in 2025, and the CAGR from 2021 to 2025 is 17.1%. Based on this calculation, the market share of the company's FPGA products in the Chinese market in 2022 was only 4.78%, an increase of 1.14 pcts. While maintaining rapid growth, there is still plenty of room for growth.

FPSoC achieved volume release, and low-power products were successfully mass-produced

The company's FPSoC products include early EF2M45 chips and the newly launched low-power SWIFT family for industrial and video interfaces, which are mainly used in industrial control and consumer electronics. In 2022, the business developed rapidly and was successfully launched, achieving revenue of 39 million yuan, an increase of 119.22%; accounting for 3.76% of total revenue; gross profit margin of 47.51%; and sales reached 3,0472 million units, an increase of 130.51%. A low-power FPSoC chip was developed and mass produced successfully in 2022, and high-efficiency FPSoC chips are being developed.

Investment advice: Our company predicts revenue of 15.39/21.47/ 2.84 billion yuan from 2023 to 2025, respectively, with a growth rate of 47.7%/39.5%/32.3% respectively; the net profit of the mother is 0.83/162/219 million yuan respectively, with a growth rate of 38.0%/95.7%/35.5% respectively; the corresponding PE is 257.6/131.6/97.2 times, respectively. The company's product matrix was completed, vehicle regulation products were successfully developed, the localization rate of the FPGA industry was low, and there was broad room for growth. It was covered for the first time, and suggestions for increasing holding-B were given.

Risk warning: downstream demand recovery falls short of expectations, product development falls short of expectations, market competition intensifies