Key points of investment

On November 28, the company held the 2023 product launch and user conference and officially released the 3A6000 processor. It uses the Dragon architecture of the Longxin Autonomous Command System. It is the first product of the fourth generation microarchitecture. The main frequency reaches 2.5 GHz, integrates 4 high-performance LA664 processor cores, supports simultaneous multi-threading technology (SMT2), and has a total of 8 logic cores in the entire chip. Integrated secure and trusted modules can provide secure boot solutions and national secret (SM2, SM3, SM4, etc.) application support.

Point and surface integration to strengthen layout

The company combines specific application requirements and customizes special chips and solutions to open market competition; at the same time, it continues to improve the cost performance ratio of general CPUs and improve the Dragon architecture software ecosystem. The developed chips include three series of processor chips and supporting chips such as the Dragon Core 1, Dragon Core 2, and Dragon Core 3, and bridge chips. Among them, the Longxin 1 MCU series is mainly aimed at embedded special applications, such as motor drives, running/walking machines, and flow meter chips, etc., and continues to develop. The Longxin 2 series mainly targets the industrial control business field. It forms three platforms of 40 nm, 28 nm and 12 nm, accumulates independent IP, and customizes special SOC for specific applications. The Longxin 3 series is mainly aimed at the information technology business field. By the 6000 series, it will be divided into three lines: desktop, server, and terminal, continuously improving cost performance. LA-architecture-based CPUs have formed a complete series of low to high performance, consisting of 1C102, 1C103, 2K0500, 2K1000LA, 2K1500,,,, and 3D5000. 2K2000 3A5000 3A6000 3C5000

Focus on fields, focus on breakthroughs

The company's series of products have been widely used in e-government, energy, transportation, finance, telecommunications, education and other industries. In the future, it will continue to focus on party government and related industries, laying out and developing storage servers, hardware, electronics, printers, etc. This type of market application is relatively fixed or single, and it is relatively easy to form a breakthrough point. Driven by solutions, it is conducive to building a competitive advantage for products in an open market. The desktop processor Dragon Core 3A6000, the server processor under development Dragon Core 3C6000, and the mobile desktop terminal processor 2K3000 released this time are expected to form Dragon Core's “Three Musketeers”. The 2K3000 plans to deliver the streaming film in 24Q1. Its single-core performance is comparable to that of the 3A5000, and integrates a self-developed second-generation GPU core LG200, cryptographic modules, and various rich interfaces. Based on this, in '24, the company plans to develop special GPGPU chips, which will form a series for different application requirements in the future.

Vertical and horizontal integration to improve ecology

Establish a “trinity” of CPU, OS, and ODM capabilities to organize the industrial chain. Horizontally, ecological enterprises mainly sell chips, adopt flexible business models vertically, and sell one board card and complete machine in specific fields at specific stages. Dragon architecture has become the world's top-level instruction set architecture for open source software along with X86 and ARM, and has received widespread support from major international open source software communities, domestic operating systems, and domestic basic applications. At the same time, the company launched Dragon Chain Technology, a new generation of interchip high-speed interconnect interface technology from Longxin. Currently, it is mainly used in server CPUs, and plans to apply it to other products in the future. Through dragon chain technology, chip interconnection can be realized, high-speed cache consistent protocol transmission is supported, scalability is strong, and the connectivity between chips is enhanced and efficiency is improved. Dragonchain technology benchmarks NVLink and CXL, and is the key core technology for cracking Chiplet.

Profit forecasting and valuation

The company is a leader in independent CPUs and an independent ecosystem builder in China. It is in a leading position in the domestic general processor industry. It has outstanding technical advantages and strong product competitiveness. It benefits from the catalytic innovation policy and the upgrading of computing power requirements, and is expected to benefit fully. We expect the company's revenue for 2023-2025 to be 6.67, 10.57, and 2,025 billion yuan, respectively, with a year-on-year growth rate of -9.66%, 58.45%, and 91.50%; net profit of net profit of -1.52, 0.56, and 308 million yuan. The current stock price corresponding to PS is 69, 43, and 23 times, maintaining the “increased holdings” rating.

Risk warning

There are risks such as technology and product development progress falling short of expectations, increased market competition, and weak demand in downstream markets.