Events:

On October 27, 2023, the company released the third quarterly report of 2023, 2023Q1-Q3, the company realized revenue of 8.054 billion yuan (YoY-15.15%) and net profit of-831 million yuan (YoY-82.54%).

Main points of investment:

The company's performance is under short-term pressure and is expected to benefit from the recovery of the Xinchuang market.

2023Q1~Q3, the company realized revenue of 8.054 billion yuan (YoY-15.15%) and net profit of-831 million yuan (YoY-82.54%). 2023Q3, the company realized revenue of 3.042 billion yuan (YoY-1.58%/QoQ+8.12%), and realized net profit of-198 million yuan (YoY-22.50%).

In the first three quarters of 2023, the company's profit decreased compared with the same period last year, mainly due to the phased transformation of the Xinchuang market, the shrinking global demand for international business and the cycle and policy adjustment of the system equipment industry. The decline in order demand led to a decrease in revenue and profit, and investment income decreased compared with the same period last year. We believe that with the deepening of the Xinchuang market in the future, the company's performance is expected to continue to benefit.

The ecological development of Pengteng has been accelerated, and Xiangji Sea Shield has launched its aerospace business.

The company's computing business is expected to benefit from Pengteng Eco + printer new products. On September 15, the Pengteng Ecological Partnership Project was launched, and the business development of the "Kunpeng + Feiteng" computing platform was accelerated. October 13, the company launched the "beacon" and "Xiongguan" series of 29 printers, the products are extended to the party and government and other office scenes and financial, education and other industry customer office. We believe that the company's computing business may benefit from the high demand for Huawei Kunpeng and Gateng servers, as well as the expansion of downstream customers of printer products.

Xiangji Sea Shield power aerospace human-computer interaction system, the company's system equipment business is expected to benefit. On October 26, Shenzhou 17 was successfully launched. Xiangji Ocean Shield, a subsidiary of the company, provided it with three sets of equipment, including liquid crystal instrument displays and information command switching controllers, to assist astronauts in rocket launch, spacecraft flight status monitoring and attitude adjustment. and rendezvous and docking with the space station and other missions to play a key role.

Feiteng CPU kernel standard ARM,S5000C server is expected to catalyze the demand: 1) the new generation of Feiteng CPU kernel reaches arm Neoverse N2 level. In September 2023, Feiteng said that the research and development of a new generation of high-performance processor core FTC870 has been completed, an increase of about 20% over the previous generation of FTC860, which is equivalent to ARM Neoverse N2 CFP 2017 score higher than Neoverse N2.

2) the continuous expansion of Feiteng ecology will help the construction of domestic Xinchuang industry. Recently, "2023 Feiteng hardware Ecological Product Manual" was launched, covering a total of 103 hardware ecological partners and 424 hardware products.

As of October 18, Feiteng has completed the design and support of 3874 projects from 977 partners, which is expected to better contribute to the ecological construction of domestic Xinchuang industry.

3) Feiteng's performance is expected to benefit from the increase in server orders. On August 21, the tender results of China Petroleum & Chemical Corp servers were announced that Chaochao Information and the Great Wall of China were the winning candidates for Feiteng servers, with bid evaluation prices of 1157 yuan and 11.84 million yuan respectively, accounting for about 1 beat 8 of the total quota of domestic servers, exceeding expectations.

On October 23, the company said that the new products of Feiteng S5000C server have sent samples to some key customers for testing, or will promote the further expansion of Feiteng chip orders.

Profit forecast and investment rating: the company is the largest shareholder of Feiteng, the core enterprise of domestic ARM architecture CPU, and also the first market share of PC and server party and government in 2022. It is expected to benefit from the demand growth of industries such as Xinchuang and AI in the future. From 2023 to 2025, we estimate that the net profit of homing is 0.96, 543 and 718 million, respectively, and the EPS is 0.03, 0.17 and 0.22 yuan per share, respectively, and the current share price corresponds to PE of 359.17, 63.60, 48.09 X, respectively, maintaining the "buy" rating.

Risk hint: macroeconomic affects downstream demand, the speed of innovation is not as fast as expected, technology iterative upgrading is not as expected, market competition is intensified, Sino-US game is intensified, and domestic and foreign companies are not completely comparable. The relevant materials and data are for reference only.