Report summary:

Twenty years of independent research and development, making it a leader in domestic CPUs. Longxin Zhongke is a domestic CPU leader that has fully mastered core computer technology such as CPU command systems, processor IP cores, and operating systems. The company's main business is the development, sales and service of processors and supporting chips. The main products and services include processor and supporting chip products and basic software and hardware solutions. The company has been deeply involved in the CPU field for more than 20 years. Through self-developed CPU command systems, the company has freed itself from foreign architecture restrictions and built the third pole of the CPU ecosystem. The company's series of products have been widely used in e-government, energy, transportation, finance, telecommunications, education and other industries.

Demand side: The process of autonomy is accelerating, and key information technology fields help the rapid development of domestic CPUs.

As the pearl of the integrated circuit industry, the importance of CPUs is self-evident. As the degree of informatization in China deepens, the share of the chip design industry is rising year by year, and relevant domestic manufacturers are developing rapidly.

Many key downstream informatization fields have brought huge demand: domestic PC shipments are stable at 50 million units/year, domestic CPU share is less than 5%, and there is huge room for replacement; the market for key industries such as government affairs is vast, and domestic CPUs can be expected in the future.

Supply side: Wintel and AA have an ecological monopoly, and LoongArch rises to prominence. Global CPUs form a situation where Wintel and AA are the two major ecological monopolies: Intel relies on its strong X86 ecosystem to occupy a leading position in the general CPU market, and its market share remains around 80% all year round; AMD is clearly catching up recently, and the overall market share of other manufacturers does not exceed 1%.

The AA ecosystem is mainly used on mobile platforms. Longxin Zhongke has absorbed the advantages of the two major ecosystems, mastered hundreds of core IPs, developed an autonomous command system, and used this to establish a completely autonomous LoongArch ecosystem, and worked with many companies to build the third pole of the global CPU ecosystem.

Maintain the “increase in holdings” rating: We are optimistic that the company will continue to break through on the domestic CPU circuit, build an independent ecosystem, and achieve high performance growth. The company's total revenue for 2023-2025 is estimated at 826/13.52 billion yuan, with a year-on-year growth rate of 11.87%/63.65%/51.87%, respectively, and realized net profit of -0.61/1.92/414 million yuan, corresponding to an EPS of -0.15/0.48/1.03 yuan.

Risk warning: customer acquisition falls short of expectations, increased industry competition, market and geographical uncertainties