Incidents:
The company released its three-quarter report for 2023. In the first three quarters of 2023, the company achieved revenue of 469 million yuan, a year-on-year decrease of 35.66%; net profit of 16 million yuan, a year-on-year decrease of 91%; net profit after deducting non-return net profit of 32 million yuan, a year-on-year decrease of 123.86%.
Q3 Gross margin was under pressure, and R&D investment remained high. Q3 In a single quarter, the company achieved operating income of 124 million yuan, -33% year-on-year; realized net profit of 23 million yuan, -52% of the previous year; and realized net profit from deductions of 6.54 million yuan, -123% year-on-year. The gross margin for Q3 alone was 56.82%, down 14.46pct year on year; sales, management, and R&D expenses were 5.46%/24.50%/58.59% respectively, down -1.31/+9.04/+15.29pct year on year. Against the backdrop of fluctuating industrial demand, the company still invests heavily in R&D. In the first three quarters of 2023, a total of 239 million yuan was invested in R&D, accounting for 50.98% of the company's revenue. According to the company's WeChat account, the company and the Changsha Institute of Computing and Digital Economics of Peking University joined hands to establish the “Advanced Computing” joint laboratory, which will focus on the research and development of efficient basic software such as high-performance basic computing libraries, research the design of next-generation domestic GPU computing architectures, and promote the construction, development and innovation of a domestic autonomous and controllable computing ecosystem. We believe that as the company continues to invest in R&D, GPU products can be iterated at an accelerated pace.
The new generation of products is expected to be released under the trend of Xinchuang's recovery. The company's latest GPU product, the JM9 series graphics processing chip, has significantly improved performance compared to the previous generation product JM7, and is fully adapted to basic domestic software and hardware ecosystems such as Feiteng, Kunpeng, Haiguang, Kirin, and Tongxin. It has gradually implemented pilot applications in various fields such as government affairs, telecommunications, electricity, energy, finance, and rail traffic. In September, at the 2023 World Computing Conference, the company first showcased desktop computers with Windows operating systems based on JM9 series GPUs. Currently, the latest JM9 series drivers can support some Windows operating systems and application software, which can meet daily office and video entertainment needs. We believe that as Xinchuang's bidding returns to its peak, the Xinchuang GPU market is also expected to pick up, and the next-generation product JM9 is expected to be released.
Investment advice: As a leading domestic GPU company, the company is expected to benefit from the recovery of the innovation industry. At the same time, the company announced a fixed increase plan to enter the general GPU field, which is expected to open up broad market space for AI computing power. The company's EPS is expected to be 0.50/0.79/1.04 yuan from 2023-2025, respectively, to maintain the “buy” rating.
Risk warning: Information and innovation progress falls short of expectations, product development falls short of expectations, military informatization spending falls short of expectations, and the risk of rising raw material costs.