Incidents:
Fudan Microelectronics released its three-quarter report on October 31, 2023. In the first three quarters of 2023, the company achieved revenue of 2,738 billion yuan, an increase of 1.25% over the previous year, and realized net profit of 650 million yuan, a decrease of 24.33% over the previous year.
Key points of investment:
The slow recovery of the consumer market put pressure on the third quarter results. In 2023, Q3 achieved revenue of 942 million yuan, a decrease of 4.56% from the previous month, and realized net profit of 210 million yuan, a decrease of 22.99% from the previous month. The main reason for the decline in performance was due to the slow recovery of the consumer market. According to the company's communication announcement, the recovery of chips involved in consumer electronics in Q3 in 2023 was slow, and products such as industrial control and high reliability maintained a good trend. In the future, with the gradual recovery of the consumer market, the company's performance is expected to re-enter an upward cycle.
The MCU business declined significantly due to weak demand, and competitive advantage led to high FPGA growth.
By product revenue, in 2023, Q3's security and identification chip revenue was about 227 million yuan, down 17.75% year on year, non-volatile memory revenue was about 268 million yuan, up 16.52% year on year, smart meter chip revenue was about 77 million yuan, down 59.47% year on year, FPGA and other product revenue was about 325 million yuan, up 38.30% year on year, and test service revenue (after consolidated offsetting) was about 45 million yuan, down 29.69% year on year. Among them, the large decline in the MCU business is due to the power grid system and consumer market being in a digesting inventory cycle and weak demand. FPGA business companies have a strong competitive advantage and a rapid revenue growth rate. In the future, as demand from related industries picks up and the company's competitive advantage increases, the company's revenue from various businesses is expected to continue to grow.
The decline in the industry cycle has led to a decline in gross margin. In terms of gross margin, affected by the industry's downturn cycle, the average unit price of the company's industrial-grade non-volatile memory and MCU declined, so gross margin also declined. In Q3 2023, the company's gross margin reached 59.76%, down 7.62 pct from month to month.
In the future, as the industry cycle picks up and the company's related products continue to be upgraded and iterated, the unit price and gross margin of the company's products are expected to recover.
Profit forecast and investment rating: The company is a leading FPGA manufacturer in China, and all product lines are competitive. In the future, as market demand expands and products iterate, the company's performance is expected to continue to grow. Considering the impact of the downturn in the industry cycle and weak short-term demand, we adjusted our profit forecast. It is estimated that the company's net profit from 2023-2025 will be 8.46/10.29/1,255 billion yuan respectively, corresponding to 2023-2025 PE of 43/36/29 times, respectively, maintaining the “buy” rating.
Risk warning: Production capacity expansion falls short of expectations; risk of technological route change; risk of downstream application expansion falling short of expectations; geopolitical risk; risk of increased market competition; risk of increased market competition; risk of new product development falling short of expectations, etc.