Report summary:

Storage products have been deeply cultivated for many years, and the products are widely used. The company mainly focuses on storage products and applications, and has four product lines: embedded storage, solid-state drives (SSD), mobile storage and memory sticks. Operating brands include industry storage brand FORESEE and consumer storage brand Lexar (Lexar). The company currently has core competencies in firmware algorithm development, memory chip testing, integrated package design, memory chip design, etc., and can provide consumer grade, vehicle grade, industrial memory, and industry storage software and hardware application solutions. The products are widely used in consumer electronics, industry, communications, automobiles, security, surveillance and other markets.

Demand: The storage market has entered a bottom-up period and is expected to improve. The size of the global memory chip market fluctuates in sync with the prosperity of the semiconductor industry, and the amplitude is large. The storage market capacity growth rate slowed in 2022 and is expected to improve. The global macroeconomic environment deteriorated in 2022. Under the influence of some regional factors in the world, demand in most markets declined sharply, and demand for memory chips was suppressed. According to the CFM flash memory market forecast, the NAND Flash market capacity increased 6% to 610 BGB in 2022, and the DRAM market capacity increased 4% to 194 BGB. The growth rate is at an all-time low. It is expected that the NAND and DRAM market size will return to 20% and 10% growth in 2023.

Supply: Overseas manufacturers are oligopolistic, and domestic manufacturers are gradually breaking through. Foreign memory chip manufacturers occupy most of the market share with their first-mover advantage and brand advantage in the terminal market. China's memory chip industry started relatively late. Local memory chip manufacturers are in the early stages of production, and the technical base is weak.

In recent years, domestic manufacturers have struggled to catch up, achieved breakthroughs in some fields, and gradually narrowed the gap with foreign original manufacturers.

Benefiting from the autonomous and controllable process of domestic memory, automotive-grade and industrial-grade memories can be expected in the future. 1) Through the acquisition of 70% of Licheng Suzhou's shares, the company obtained Licheng Suzhou's advanced packaging testing production capacity, complete packaging testing layout, and enhanced industrial chain integration capabilities. 2) Memory is an important part of the innovation industry. Jiang Bolong is in a leading position in domestic memory products and is expected to fully benefit from the growth dividends of the domestic storage market. 3) In the industrial control level application of vehicle regulations, the company's self-developed memory chip shipments are growing rapidly. Currently, it has gone through deep Tier1 cooperation. The products are widely used in mainstream automobile brands such as Xiaopeng, BYD, SAIC, GAC, FAW, Changan, and Chery. With reliable product performance, the company is expected to fully benefit from the growth in the market size of automotive-grade and industrial-grade memory chips.

Profit forecast and rating: The company's revenue for 2023-2025 is estimated to be 92.97, 119.95, and 14.357 billion yuan respectively, and net profit of -6.69, 3.58, and 630 million yuan respectively. The company's acquisition has enabled Suzhou to extend the industrial chain and expand vehicle grade and industrial control grade product lines. We are optimistic about the company's future development and give it an “increase in holdings” rating.

Risk warning: downstream market demand, new product development progress, product competitiveness falls short of expectations