Performance summary: In 2022 as a whole, the company achieved revenue of 740 million yuan, a year-on-year decrease of 38.5%, and achieved net profit of 0.5 billion yuan, a year-on-year decrease of 78.2%; after deducting non-net profit - 160 million yuan, a year-on-year decrease of 192.2%.

In 23Q1, the company achieved revenue of 120 million yuan, a year-on-year decrease of 34.9%; net profit of Guimu - 0.7 billion yuan, a year-on-year decrease of 298.2%; after deducting non-net profit - 100 million yuan, a year-on-year decline of 1041.1%; short-term performance bottomed out under pressure.

Performance is under pressure in the short term, and increased long-term growth in R&D can be expected. The company's performance in 2022 fell short of expectations, mainly due to the stagnation of the e-government market and the decline in sales revenue of informatization applications. 1) By business, the company's industrial control chip/information chip/solution business achieved revenue of 2.8/19/270 million yuan respectively, which was -6.7%/-71.4%/+10.1%, respectively, compared with the same period last year. 2) In terms of profit margin, the company's gross margins and net interest rates in 2022 were 47.1%/7.0%, respectively -6.7 pp/-12.7 pp, respectively, mainly due to the company's adjustments in market layout and product structure. 3) In terms of cost rate, the company's sales/management/R&D expenses ratio in 2022 was 12.2%/13.7%/42.4%, respectively, compared to +4.6 pp/+5.4 pp/+19.0 pp, respectively. The company's R&D expenses in 2022 were 310 million yuan, an increase of 11.5% over the previous year. The company continues to invest in research and development to improve the cost performance ratio of products. Under the trend of localization substitution and the gradual recovery in demand in the creative innovation industry, the company's performance has gradually recovered.

Improve the software ecosystem and upgrade product performance. The company's various chips improve the autonomy and controllability of the CPU from the two dimensions of the command system and production process. In 2022, the company completed commercialization of 16-core server chips and design and post-silicon verification of 32-bit server chips; in April 2023, the company launched a 32-core 3D5000 product with excellent performance, which is expected to become a growth point for the company's future performance. In the future, the company will continue to improve the cost performance ratio of Longxin CPUs and improve the software ecosystem, further consolidate the software foundation of the Dragon architecture, and improve the development of the first GPGPU chip and the debugging and commercialization of the 3A6000. At the same time, the binary translation platform continues to be changed to run X86/Linux and X86/Windows applications smoothly on the Loongxin platform; optimize “one trick” basic applications such as the Loongxin Browser, Loongxin Printer, Loongxin 3D Display Control, and the Longxin Video Editor, and develop an application ecosystem. Excellent product performance+rich software ecosystem is expected to help the company maintain its leading position in the market.

Policy-based and open markets are gaining strength at the same time, steadily enhancing the company's core competitiveness. The company's mastery of the trinity of general-purpose processors, operating systems, and solutions is a prerequisite for its steady development in policy markets and open markets. In the future, the company will continuously improve its position in the policy market through cost performance and optimization of the software ecosystem. At the same time, combining specific information technology application requirements, the company will form an open market cost advantage for system solutions through software and hardware customization and industrial chain restructuring, thereby enhancing competitiveness in the open market.

Profit forecasts and investment recommendations. We expect the company's net profit to the mother in 23-25 to be 23/41/61 million, and the compound growth rate of net profit to the mother in the next three years is expected to reach 127.8%. Considering that the company adheres to the policy of “walking on two legs” between a policy market and an open market, it is expected that it will take the lead in benefiting from the increase in demand brought about by the development of the policy information technology market and has strong profit elasticity. We gave the company 45 times PS in 2023, corresponding to the target price of 179.89 yuan, covering the “buy” rating for the first time.

Risk warning: Risks such as macroeconomic recovery falling short of expectations, R&D progress falling short of expectations, and recovery in industry demand falling short of expectations.