1H23's performance met our expectations

In the first half of 2023, the company achieved operating income of 404 million yuan, a year-on-year decrease of 21.68%; net profit of Gimu was 80 million yuan, a year-on-year decrease of 312.90%. In the second quarter of 2023, the company achieved operating income of 217 million yuan, a year-on-year decrease of 15.99%; net profit for the return of 29 million yuan, a year-on-year decrease of 246.36%. Overall profit was in line with our expectations.

Development trends

Affected by falling demand in the terminal market, 1H23's revenue declined year-on-year. In the first half of 2023, since the world is still in the semiconductor inventory digestion period and demand in the downstream market is declining, the boom in the semiconductor industry declined somewhat, the demand growth rate was negative, and the company's overall product shipments declined compared to the same period last year. At the same time, many of the company's new products or models are still in the introduction period. We expect that as demand for semiconductor terminals bottoms out and new products are successfully introduced, the company's revenue may resume growth.

1H23 R&D expenses increased year over year, dragging down profit performance. The company continues to increase R&D investment. 1H23's R&D expenses were 208 million yuan, an increase of 40.60% over the previous year, accounting for 51.48% of revenue. The company carried out project research and development in various fields such as high-performance and high-capacity FPGA chips, FPSoC chips, and advanced technology. 1H23 R&D personnel increased by 30.18% over the same period last year. Currently, the proportion of FPGA localization is still low, and the company has broad room for growth.

The company has made progress in the development and introduction of new products, which is expected to drive an increase in revenue. In terms of new product development, the company concentrated its efforts on preparing for mass production of a new series of products, and also carried out research and development of products with new specifications for the FPGA/FPSoC chip series and supporting special EDA software; in terms of customer introduction, the company's new products have begun to be tested and tested at many customers, and good progress has been made.

Profit forecasting and valuation

Considering that the company continues to invest heavily in R&D and that it still takes time for downstream demand to pick up, we lowered our 23/24 operating income by 14.3% and 3.4% to 1,207 million yuan/2,011 billion yuan, and net profit by 55.7% and 13.0% to 31 million yuan/129 million yuan. The company's current stock price corresponds to a market sales ratio of 15.26x/9.16x in 2023/2024. Considering that the current overall prosperity of the semiconductor sector is below the historical average, we maintained our outperforming industry rating and lowered the target price by 22.1% to 60 yuan. The company's target price corresponds to the 2023/2024 market sales ratio of 19.93x/11.96x, which is 30.6% upward from the current stock price.

risks

The risk of new products falling short of expectations; the risk of market competition being intense and market expansion falling short of expectations; the risk of technology development failure.