occurrences

The company released its three-quarter report for 2023. The company achieved operating income of 8.054 billion yuan in the first three quarters of 2023, a year-on-year decrease of 15.15%; net profit of the mother - 831 million yuan; net profit after deducting non-return net profit - 944 million yuan.

Revenue is under pressure due to the macroeconomic environment, and a high level of R&D investment has been maintained. In Q3 of 2023, the company achieved revenue of 3,042 billion yuan, a year-on-year decrease of 1.58%; net profit of the mother - 198 million yuan; net profit after deducting non-return net profit - 223 million yuan. The loss increased year-on-year. Affected by three major factors, including the phased transformation of the credit and innovation market, shrinking global demand for international business, and system equipment industry cycles and policy adjustments, the decline in company order demand led to a year-on-year decline in revenue. At the same time, the company maintained a high level of R&D investment. R&D expenses in the first three quarters totaled 1,035 billion yuan, and the R&D expense ratio increased 3.7 pct year-on-year. Combined with a sharp decline in investment income, profits were under pressure.

Feiteng products continue to be updated and iterated, and the ecology is constantly improving. Recently, Feiteng products have made a lot of progress:

1) According to a report by XinZhiXun, Feiteng's next-generation high-performance processor core, FTC870, has been developed, and its performance has reached the international advanced level. The main frequency of the FT870 core can reach 3 GHz, and the overall performance has increased by about 20% compared to the previous generation FTC860, reaching a level comparable to ArmneOverse N2; 2) The “2023 Feiteng Hardware Ecosystem Product Manual” has been newly launched, covering a total of 424 hardware products from 103 hardware ecosystem partners. As of October, Feiteng has completed the design and support of 3874 projects with 977 complete machine partners, and has established close cooperative relationships with 324 hardware ecosystem partners; 3) The company stated on the interactive platform that the new server products based on the S5000C chip have been sampled and tested for some key customers. We believe that the launch of Feiteng's next-generation products is expected to bring about a new round of growth in the company's performance.

Investment advice: As a national team in China's independent computing industry, the company is also an important shareholder of Feiteng, a core domestic CPU company, and is expected to benefit from the accelerated promotion of innovation. Taking into account the current pace of development of Xinchuang and the company's three-quarter report, the profit forecast was lowered. The company's EPS is expected to be 0.03/0.08/0.09 from 2023-2025, respectively, maintaining the “buy” rating.

Risk warning: The promotion of Xinchuang fell short of expectations, product development fell short of expectations, and industry competition intensified.