Event: The company released its performance report for the third quarter of 2023. The first three quarters achieved operating income of 2,738 billion yuan, an increase of 1.25% over the previous year, net profit of 650 million yuan, a year-on-year decrease of -24.33%, and net profit of 604 million yuan after deducting non-return net profit of 604 million yuan, a year-on-year decrease of -27.75%.
The company's performance was under pressure in the short term due to the removal of inventory from downstream consumer categories. The company achieved revenue of 942 million yuan in Q3, a year-on-year decrease of 6.0%, a decrease of 4.6%, net profit of 201 million yuan, a year-on-year decrease of 38.9%, a decrease of 23.0% over the previous year, and a net profit of 188 million yuan after deducting non-return net profit of 189 million yuan, a decrease of 40.4% year-on-year and 19.8% month-on-month. Q3 Single quarter gross margin 59.
8%, down 7.6 pct from month to month. In the first three quarters, the company continued to maintain strong R&D investment, continued technology iteration and new product research and development, while continuously enriching the product range to meet more application fields, and strengthening product research and development based on diversified supply-side processes. R&D expenses were about 760 million yuan, an increase of about 200 million yuan over the previous year, mainly the increase in materials and processing costs, depreciation and amortization, and employee remuneration used in R&D projects.
The highly reliable business has maintained steady growth. In the first three quarters, some of the products used by the company in the consumer electronics and power electronics industries were greatly affected by factors such as insufficient demand and early inventory absorption, and revenue declined; however, the non-volatile memory and FPGA product business benefited from advanced and reliable technology, continuous expansion of application fields, and steady growth in demand from major customers, and maintained steady growth in revenue growth. Looking at the Q3 business segment, 1) security and identification chips achieved revenue of 227 million yuan, yoy -17.75%, qoq +12.38%; 2) non-volatile memory achieved revenue of 268 million yuan, yoy +16.52%, and qoq -13.83%; 3) smart meter chips achieved revenue of 77 million yuan, yoy -59.47%, qoq +16.67%; 4) FPGA and other chips achieved revenue of 325 million yuan, yoy +38.3%, qoq -9.22%; 5) integrated circuit testing services Achieved revenue of 45 million yuan, yoy -43.75%, and q-10%.
The domestic high-reliability FPGA market space is large, the threshold is high, and the localization rate is low. The company's FPGA product line has a series of large-scale heterogeneous integrated programmable logic device products. It is the first in China to successfully develop 100 million gate FPGAs and heterogeneous integrated programmable system-on-chip (PSoC) chips, as well as integrated field programmable (FPGA) and artificial intelligence (AI) reconfigurable chips (FPAI) for artificial intelligence applications. Currently, the product line is promoting a new generation of FPGAs based on the 1xnm FinFE advanced process. It targets application scenarios such as computer vision, machine learning, and high-speed digital processing, and provides a product line with low cost, low power consumption, high performance, and high reliability for smart cockpits, video surveillance, medical imaging, and network communications industries. In the field of high reliability, the company has been deeply involved in the industry for many years. After a long period of verification, the products are gradually released. The growth rate is good, the certainty is high, and the orders on hand are sufficient. Along with the tense situation overseas and the acceleration of domestic semiconductor substitution, the company, as one of the very few domestic FPGA suppliers in the industry, will fully benefit from the huge demand brought about by localization in the downstream market.
Investment advice: Considering the pressure on the company's downstream demand, we lowered the 2023/2024/2025 net profit to 8.91/11.
76/1,453 billion yuan (previous value of 11.2/14.53/2,011 billion yuan in 23-25), corresponding to PE of 43/33/26 times. The company is one of the leading manufacturers in the FPGA industry in mainland China. In the context of localization, downstream demand is strong, product structure continues to be optimized, scarcity and growth are achieved, and the “buy” rating is maintained.
Risk warning event: FPGA market demand and sentiment may fall short of expectations, risk of falling product prices, risk of price increases for upstream raw materials.