Demingli was founded in 2008 and listed on the Shenzhen Stock Exchange in 2022. The company's main business is the sale of storage module products and the design and development of flash memory master control chips. Currently, it has covered the three major flash memory product lines of mobile storage, solid-state drives, and embedded storage. The company's revenue scale has continued to grow rapidly in recent years. 2023H1 Against the backdrop of weak industry demand, the company bucked the trend and achieved revenue of 591 million yuan, +10.03% year-on-year. We expect that starting in 2023Q3, as downstream demand recovers and terminal inventory is removed, the volume and price of the company's products are expected to recover, and revenue and profit levels will improve quarterly.

The size of the Nand flash memory product market continues to grow. Nand Flash is the second largest segment of memory chips. The main product types are embedded storage, SSD solid state drives, and mobile storage. Judging from downstream demand, mobile phones, PCs, and servers are the three major sources of terminal demand. In the future, the mobile phone and PC side will continue to be upgraded to higher capacity, the server side will benefit from rapid growth driven by AI demand, automotive intelligence and networking will also spawn demand for higher capacity flash memory, and the market size of Nand flash memory products will continue to grow. As the second-largest Nand flash memory demand region in the world, China expects the domestic flash memory product market to reach 303.2 billion yuan in 2026, and domestic module manufacturers will have plenty of room for growth.

Inventory of NAND Flash products continues to be digested, supply continues to be cut, and demand is expected to continue to pick up. As an intermediate link between manufacturing and terminals, module products are more sensitive to demand perception. Currently, module product prices continue to rise. As a leading module manufacturer in China, Demingli's product volume and price are expected to enter a channel of rapid increase in volume and price starting in 2023Q3. At the same time, the company is a company with a relatively small market capitalization among listed domestic storage module manufacturers, and is more flexible in the upward channel.

Analysis of future growth momentum and competitiveness: The company's products are gradually expanding from mobile memory cards to solid-state drive module products. In the future, the revenue scale of solid-state drives and embedded products will gradually expand, becoming the second driving force for the company's growth. Since its inception, the company has used partial wafers in a differentiated manner to produce storage products, and is equipped with self-developed master control technology to form cost-effective and competitive products. The gross margin is higher than that of its peers. At the same time, it has smoothed out performance fluctuations during the industry's downturn cycle, and is more resilient to risks.

We are optimistic about the future development of the company. We expect 2023/2024/2025 to achieve revenue of 14.20/19.83/2,525 billion yuan, YoY +19.22%/+39.71%/+27.35%, respectively; net profit of 0.32/ 1.69/225 million, YoY -53.05%/434.36%/33.58%, respectively; corresponding PE is 311.2/58.2/43.6x, and the average PE value of comparable companies in 2024 and 2025 is 111.5x, 84.7x. Demingley has a valuation advantage over comparison. Covered for the first time, giving it a “Highly Recommended” rating.

Risk warning: downstream demand falls short of expectations; R&D progress falls short of expectations; inventory removal falls short of expectations.