Quarterly performance summary: The company realized revenue of 940 million yuan in 2023Q3, down 6% year on year. The operating revenue of each product line was divided into: security and identification chips of 230 million yuan, non-volatile memory of 270 million yuan, smart meter chips of 0.8 billion yuan, FPGA and other chips of 330 million yuan, and testing service revenue of 500 million yuan. The gross profit margin was 59.8%, down 530 bps year on year and 760 bps month on month. The month-on-month decline was mainly due to a decrease in the unit price of storage and MCU products, business I profit of 200 million yuan, down 42.4% year on year. Net profit attributable to mother was 200 million yuan, net profit not attributable to mother was 190 million yuan, a year-on-year decrease of 40.4%. Deduction of non-earnings per share was $0.23 compared to $0.39 for the same period last year.

Actively promote next-generation FPGA process research and development and expand product application scenarios: sales revenue of FPGAs and other chips in the first nine months of 2023 was 9.1 billion yuan, an increase of 51.7% over the previous year. The company has successfully completed billion-grade FPGA products and PSoC chips, and is equipped with EDA tools that support the entire process. It is currently vigorously promoting research and development of the next-generation FPGA process 1xnm FinFET, and is actively expanding the applications of its FPGA products, such as smart seats and medical imaging. Furthermore, the company's PSoC chip, which combines technologies such as CPU and AI, is also expected to increase customer stickiness. It is estimated that the global FPGA market will reach 22.1 billion US dollars by 2030, and the 2021-2030 CAGR is about 15%. We believe that in the future, on the premise of meeting the needs of the highly reliable market, the company will further enrich the 28nm process of FPGA and PSoC chip types to meet the needs of different levels of the market, and that high-priced FPGA products will continue to increase the company's gross profit margin.

Some businesses continued to be under pressure due to industry influence, and MCU rebounded slightly month-on-month: since 2023, industry capacity and inventory, led by weak terminal consumer markets, have been affected by liquidation, and MCU and security and identification chip businesses have been under great pressure. Q3 revenue declined 59.5% and 17.8% year-on-year, respectively. However, the revenue of the MCU chip business increased 15.2% month-on-month in the current quarter, and inventory was gradually completed along with the industry. The company is expected to actively promote 55nm and 90nm embedded flash memory technology to further enrich the MCU product matrix.

The target price is HK$20.00 to maintain the buying rating: Although the semiconductor industry has entered a downward cycle, the company's revenue for all businesses has been under pressure for 23 years. However, the steady growth in FPGA business customer orders and the continued abundance of MCU product matrices are expected to drive the company's revenue back to growth. We estimate that the company's revenue CAGR for the next three years will be 9.6%, and the net profit CAGR will be 9.6%. The PE valuation method was adopted to provide the company with a target price of HK$20.00 in response to 15 times the profit in 2024. Compared with the current price, there is an increase of 25.8%, and the purchase rating is maintained.

Risks: Product sales conditions fall short of expectations, product price adjustments, increased market competition, R&D progress falls short of expectations, and production capacity is limited.