Description of the event
On October 27, 2023, VeriSilicon Co., Ltd. announced the “VeriSilicon Microelectronics (Shanghai) Co., Ltd. 2023 Third Quarter Report”. In the first three quarters of 2023, the company achieved operating income of 1,765 million yuan, -6.34% year-on-year, and 2023Q3 in a single quarter, the company achieved net income of 581 million yuan, -13.51% year-on-year; affected by fluctuations in customer intellectual property licensing business confirmation, the company achieved net profit of -134 million yuan in the first three quarters of 2023, compared to 2023H.
Incident comments
The downturn in the semiconductor industry is gradually coming to an end, and short-term IPs confirm that quarterly fluctuations will not change the long-term trend. With the gradual restoration of the global economic situation, the arrival of the peak season for traditional electronics, and the gradual implementation of various new technologies and applications such as AI, virtual reality, and robotics, etc., the global semiconductor downturn cycle is gradually coming to an end, entering an oscillating period of bottoming out and rebounding. During this period, the company's intellectual property IP licensing revenue was affected by short-term fluctuations in customer project progress. 2023Q3 revenue for the single quarter fell to 94 million yuan, but the average IP licensing price remained at 5.2222 million yuan. Core IPs such as GPUs, NPU, and VPU IP maintained a rapid growth trend under the development of new technologies such as AI. In the future, IP licensing revenue is expected to gradually recover in subsequent quarters as the progress of customer design projects is adjusted. At the same time, one-stop customization services maintained month-on-month growth with relatively stable project support. 2023Q3 one-stop customization service revenue reached 457 million yuan, +23.41% month-on-month, of which mass production business revenue was 326 million yuan, +15.18% year-on-year and +37.03% month-on-month. The continuous implementation of new downstream technologies and applications has also contributed to the improvement of the company's overall profitability. The company's comprehensive gross margin for the first three quarters of 2023 was 43.42%, an increase of 2.83pct over the previous year. In the first three quarters of 2023, the gross margin of the company's one-stop chip customization business increased year-on-year. Among them, the gross margin of the chip design business and chip mass production business was 11.77% and 26.77%. Profitability increased steadily, which is expected to bring stronger performance growth potential in the future.
With abundant on-hand orders+improved inventory & receivables, the company's growth potential remains stable over the medium to long term. As a leading IP and one-stop chip customization service company in China, as of the end of the third quarter of 2023, the company had sufficient orders in hand, reaching 2,058 billion yuan. The total amount of orders for one-stop customized business was 1,605 billion yuan, accounting for 78.03%, and the total amount of orders converted within one year of ongoing orders was 1,336 billion yuan, accounting for 64.91%; semiconductor IP licensing business orders in the past 45 million yuan, far exceeding 2023Q3 intellectual property licensing business revenue, and future growth can be expected. At the same time, the company's accounts receivable as of the end of the third quarter of 2023 were 1,248 billion yuan, +29.82% over the previous year, +5.52% over the previous month, while the inventory was 361 million yuan, +15.40% over the previous year, and -29.90% over the previous year. Combined, we can observe that the company's overall shipping pace to customers is steady, and the customer's willingness to pick up goods is strong. In the future, it is expected that with continued product delivery and gradual revenue confirmation, it will provide momentum for the company's business revenue growth.
Adverse the wind and increase investment in R&D, and reserve more potential for growth. The downturn in the industry did not change the company's strategy to continuously improve its technical level. The company invested 706 million yuan in R&D in the first three quarters of 2023, accounting for 40.02% of revenue, an increase of 6.90pct over the previous year, and the company's R&D investment in the single quarter of 2023Q3 was 263 million yuan, +30.20% year-on-year, +16.73% over the previous year. In the future, with the company's IP chip platform ecology and software and hardware integration, the core fire is expected to spread.
We expect the company's revenue in 2023-2025 to reach 26.20, 33.01, and 4.197 billion yuan. The corresponding PS is 11X, 9X, and 7X, maintaining the “buy” rating.
Risk warning
1. The risk of delays in the implementation of customer projects;
2. The company's IP, Chiplet and other technology research and development progress fell short of expectations.