Incidents:
Fudan Microelectronics released its 2023 semi-annual report on August 28, 2023. In 2023, H1 achieved revenue of 1,796 billion yuan, an increase of 5.52% over the previous year, and realized net profit of 449 million yuan, a year-on-year decrease of 15.32%.
Key points of investment:
Highly reliable products drive growth, and gross margin increased month-on-month. The company's Q2 revenue for the single quarter was 987 million yuan, an increase of 22.00% over the previous quarter, and achieved net profit of 261 million yuan, an increase of 38.83% over the previous month. The growth trend is expected to continue in the future. Benefiting from the increase in the sales share of the company's highly reliable products and the launch of new products, the company's gross margin increased slightly. The comprehensive gross margin of 2023H1 reached 67.10%, an increase of 2.10 percentage points over the previous year. The company's R&D continues to increase. 2023H1's R&D expenses reached 588 million yuan, an increase of 47.54% over the previous year. In the future, as the company's new products are iterated and downstream demand is restored, the company's performance is expected to increase month-on-month.
FPGAs are growing rapidly, and the storage business is bucking the trend. By product line, due to downstream demand, the company's security and identification product line achieved revenue of 410 million yuan during the reporting period, a year-on-year decrease of 11.03%; the smart meter product line achieved revenue of 113 million yuan during the reporting period, a year-on-year decrease of 59.06%; in terms of the non-volatile memory product line, benefiting from the wide range of applications of the company's storage products and the company's timely adjustment of the product structure guided by market demand, the company achieved revenue of 588 million yuan during the reporting period, an increase of 20.63%; FPGA and other products benefited from the company's new product launch and downstream demand growth, report Revenue was 586 million yuan during the period, an increase of 54.88% over the previous year.
FPAI was successfully released, and advanced process FPGA research and development continues to advance. During the reporting period, the company's research and development work for a new generation of 1 billion gate level FPGA products is underway, and future performance is expected to be greatly improved. The company's PSoC products have been mass-produced and applied in batches at multiple customers. The company's next-generation Heterogeneous Intelligent PSoC product FPAI equipped with an APU, GPU, VPU, eFPGA, and AI engine has been successfully released and can be applied to the field of artificial intelligence; the company is also actively promoting next-generation FPGA R&D work based on the 1xnm FinFET advanced process. Related products are expected to be used in computer vision, machine learning, and high-speed digital processing in the future.
Application areas continue to expand, and downstream demand is expected to recover. In terms of security and identification products, the company developed a new generation of NFC technology that can support more types of NFC devices based on the accumulation of RF chip design technology, and launched new products and applications such as ultra-high frequency EPC tags, anti-counterfeiting security chips, and car readers and writers, which have been recognized by customers. In terms of non-volatile memory products, the company is actively promoting the application of vehicle regulations for related products. During the reporting period, some of the company's EEPROM and NOR Flas have passed vehicle regulation certification, and the relevant assessment of SLC NAND vehicle grade products is in progress. In terms of smart meter chip products, the company has increased R&D investment in automobiles, smart home appliances, industrial control products, etc. During the reporting period, the company's MCU products completed the development and streaming of 12-inch 55nm and 90nm embedded flash memory process platforms, and it is expected that the complete layout of 12-inch and 8-inch process platforms will be achieved in the future.
Profit forecast and investment rating: The company is a leading domestic FPGA manufacturer, and all product lines are in a leading position in the country. In the future, the company's performance is expected to continue to grow as market demand expands, product expansion and iteration. Considering the current boom in the industry, we adjusted our profit forecast. We expect the company's net profit to be 1,101/13.79/1,744 billion yuan respectively in 2023-2025, corresponding to 40/32/25 times PE in 2023-2025, respectively. Given that the company's FPGA products are expected to expand in the fields of 5G communication, artificial intelligence, etc., we maintain the company's “buy” rating.
Risk warning: risk of capacity expansion falling short of expectations; risk of technology route change; risk of downstream application expansion falling short of expectations; geopolitical risk; risk of increased market competition; risk of uncertainty about share repurchase progress; risk of falling short of expectations in new product development, etc.