Event description:

The company released the performance report for the third quarter of 2023: In the first three quarters of 2023, the company achieved operating income of 375 million yuan, an increase of 16.42% over the previous year; net profit of -59 million yuan, a year-on-year decrease of 161.28%; net profit after deduction of -109 million yuan, a year-on-year decrease of 391.08%.

Incident reviews:

The company's net profit was slightly lower than our expectations, mainly due to a decrease in revenue from the IP licensing business. At the same time, due to increased market competition, lower product prices, increased production costs for wafers, etc., led to a decline in gross margin.

The company's gross margin for the first three quarters was 24.81%, compared to 52.88% for the same period last year, down 28.07 percentage points from the previous year; the gross margin for the Q3 single quarter was 23.76%, down 5.64 percentage points from the previous month.

The company continued to increase R&D investment. The R&D expenses for the first three quarters were 178 million yuan, up 99.24% year on year, and the R&D expense rate was 47.3%. The company continued to build on the core competitiveness of products such as automotive electronic chips, high-reliability storage control chips, and high-performance high-security edge computing chips, increasing the number of R&D personnel and investment in R&D materials.

The company gathers domestic products that are autonomous and controllable, and focuses on the layout of independent chips and module products.

In-vehicle MCU chips: The company deeply lays out in-vehicle MCU chips, independently innovates to achieve domestic replacement, and focuses on major customers. Automotive electronic chips have been serialized and have successively entered leading domestic manufacturers such as BYD, Chery, Geely, SAIC Motor, and Changan, as well as module manufacturers such as Etech, Hengrun, and Koseda.

RAID control chip: The company's forward-looking layout of RAID chips. The performance of the successfully developed CCRD3316 is comparable to LSI's 9361 series. It can achieve localized replacement of similar products, breaking the situation where raid control chips have been monopolized by foreign companies for a long time. At present, the company's related Raid chip and board solutions have been applied and tested on more than 10 key domestic customers, and the overall feedback is quite good.

Investment advice:

We expect the company's operating income for 2023-2025 to be 739 million yuan, 1,208 million yuan, and 1,944 million yuan respectively, and net profit of 54 million yuan, 102 million yuan, and 186 million yuan, corresponding PE of 182.85X, 96.57X, and 52.92X. Maintain a “buy” rating.

Risk warning:

The risk of technological change: If a company cannot follow the development trend of new technology in a timely manner, it may affect the company's profitability. The risk of new product customer expansion falling short of expectations: If the company's products fail to meet customer needs, it will affect the company's product sales. Risk of increased market competition: Currently, the company has a first-mover advantage in the automotive chip field through technology accumulation. As other domestic manufacturers make breakthroughs in R&D, it may affect the leading position of the company's related products in the country.