Event: The company released its report for the third quarter of 2023.
Weak downstream demand is compounded by inventory removal, and the company's performance is under pressure in the short term. In the first three quarters of 2023, the company achieved operating income of about 2.74 billion yuan, an increase of about 1% over the previous year, and realized net profit of 650 million yuan, a year-on-year decrease of about 24%. In 2023Q3, the company achieved operating income of 940 million yuan, a year-on-year decrease of about 6%, and net profit of 200 million yuan, a year-on-year decrease of about 39%. The main reasons for the decline in the company's short-term performance are: 1) insufficient demand in the consumer electronics and power electronics industry, and early inventory has yet to be digested, resulting in a decline in the company's gross margin; 2) the company continues to iterate technology and develop new products, and R&D expenses continue to expand.
Under the wave of domestic substitution, the FPGA business is growing well. In the first three quarters of 2023, the company's FPGA business achieved revenue of 9.1 billion yuan, an increase of 52% over the previous year; the FPGA business accounted for 33% of the company's total revenue, an increase of nearly 11 pct over the same period last year. In terms of R&D progress, the company's FPGA product line has successfully broken through many key technologies, forming obvious technology cluster advantages in the FPGA and PSoC fields; PSoC products have been successfully mass-produced, FPAI has been successfully released, and the company's product line has been further enriched. Currently, the development of a new generation of 1 billion gate-level FPGA products is underway, and it is expected that the performance of various aspects will be greatly improved compared to the previous generation product.
Build a diversified product matrix and continue to expand downstream application fields. In terms of smart meter chips, the company's MCU products have completed the development and distribution of the 12-inch 55nm and 90nm embedded flash memory process platforms, and continued to promote the complete layout of the 12-inch and 8-inch process platforms, and the product content continues to be enriched. In terms of non-volatile memory, the three product lines of EEPROM, NOR Flash, and NAND Flash continue to expand their coverage. Some EEPROM and NOR products have passed the AEC-Q100 assessment, and assessments related to NAND vehicle grade products are progressing. In terms of security and identification chips, the company has launched a variety of IoT security chips, focusing on the technical layout of the sensing field, and actively promoting compatible security solutions for security chips, sensor chips, and radio frequency chips to meet growing market demand.
We forecast that the company's net profit for the year 23-25 was 8.8, 11.5, and 1.45 billion yuan respectively (the original 23-24 forecast was 15.3 billion yuan and 2.06 billion yuan, which mainly lowered the revenue growth rate and gross profit margin of smart meter chips, safety identification chips, integrated circuit testing services, etc., and raised R&D expenses). Based on the 24-year average PE valuation of comparable companies, a target price of 63.0 yuan was given to maintain the purchase rating.
Risk warning
Downstream market recovery falls short of expectations; new product development falls short of expectations; and FPGA business development falls short of expectations.