Matters:
On August 28, 2023, the company released the 2023 semi-annual report:
1) 2023H1: Operating income of 1,796 billion yuan, +5.5% year on year; gross profit margin 67.10%, year on year +2.11 pct; net profit attributed/net profit after deducting net income of 449/415 million yuan, -15.3%/-20.0%;
2) 2023Q2: Operating income of 987 million yuan, year over year, +6.5%/+21.9%; gross profit margin of 67.38%, year over year, +1.20 pct/+0.60 pct; net profit of 261 million yuan, year over year/month, -12.3%/+38.6%, after deducting net profit of 235 million yuan, less net profit of 235 million yuan, year-over-year/-19.7%/+30.5%.
Commentary:
An inflection point in performance has been reached, and high reliable business volume has driven the company to maintain high profitability. The company's 23Q1/23Q2 achieved revenue of 809/987 million yuan respectively, of which security and identification chip revenue was 208/202 million yuan, non-volatile memory revenue was 277/311 million yuan, smart meter chip revenue was 0.47/ 066 million yuan respectively, and FPGA and other chip revenue was 228/358 million yuan respectively. The company's revenue growth was mainly contributed to FPGAs and other products. Benefiting from product restructuring, the company's gross margin for 2023Q2 was +0.60 pct to 67.38% month-on-month. At the same time, the company further increased R&D investment. The 2023Q2 R&D expenses rate was +9.10pct/+4.13pct to 31.24% year on year, so profit growth was weaker than revenue. As the company's R&D investment is gradually converted into performance, we believe that the company's profitability is expected to continue to be unleashed in the future under the scale effect.
The company's highly reliable business maintains technological leadership, and product differentiation maintains strong demand. The company took the lead in developing billion-level FPGAs and PSoC chips in China. About 35% to 40% of 2023H1's FPGA revenue was contributed by PSoC products. The volume of high-end products enabled the company to maintain its leading competitive advantage. In the first half of the year, FPGAs and other chips achieved revenue growth of more than 50% over the same period, which is far higher than that of domestic peers. The company is promoting a new generation of FPGAs based on the 1xnm FinFET advanced process. With its technological advantages, the company continues to benefit from the trend of localization. We expect that the gradual launch of new products will provide the company with continuous growth impetus.
The company's MCU and other businesses are gradually breaking out of a trough, and product upgrades are expected to return to a growth trajectory. Since the second half of 2022, the company's MCU and non-volatile memory business has faced great pressure. The short-term pressure on the civilian goods business has had a significant impact on the company's short-term performance. As the industry's inventory removal was gradually completed, the company's MCU and other products gradually broke out of the industry trough, and the 2023Q2 MCU business revenue increased by 40.4% month-on-month. Some of the three product lines of safety and identification chips, non-volatile memory, and MCUs have entered the automotive electronics field. As the product structure and customer structure continue to be optimized and upgraded, future performance growth is worth looking forward to.
Investment advice: As an established IC design company, the company continues to benefit from domestic replacement opportunities, and FPGAs have entered a harvest period. Considering that the short-term boom in the company's civilian products is under pressure and that the increase in R&D expenses etc. will have an impact on performance, we lowered the company's net profit forecast for 2023-2025 from 14.05/19.07/2,469 million yuan to 1,078/14.66/1,808 billion yuan, corresponding to an EPS of 1.32/1.79/2.21 billion yuan. Referring to the industry's comparable company valuation and our own performance growth rate, we gave the company 50 times PE in 2023, corresponding to a target price of 66.0 yuan/share, maintaining the “push” rating; giving the company's AH shares a discount rate of 40%, that is, giving Hong Kong stocks 20 times PE in 2023, corresponding to a target price of HK$28.8 per share, maintaining the “push” rating.
Risk warning: downstream demand falls short of expectations; new product launches fall short of expectations; capacity support falls short of expectations.