Incident: Recently, Longxin Zhongke released the new-generation general-purpose processor Longxin 3A6000, the printer main control chip, the Longxin 2P0500, and announced the Longxin processor core IP and Longxin autonomous command system architecture licensing plans to the outside world.

The company continues to upgrade its product range and continuously improve product performance. The company released two products, 3A6000 and 2P0500, mainly for desktop processors and printers. They are the main domestic replacement products in the field of innovation:

1) The Longxin 3A6000 processor uses the LoongArch architecture, and the main frequency reaches 2.5 GHz. It integrates 4 newly developed high-performance LA664 processor cores, supports simultaneous multi-threading technology (SMT2), and the entire chip has a total of 8 logic cores. Integrated secure and trusted modules can provide secure boot solutions and national secret (SM2, SM3, SM4, etc.) application support. According to the test results of Saixi Laboratory of the China Electronics Technology Standardization Research Institute, the overall performance of the Longxin 3A6000 processor is comparable to the 10th generation Core quad-core processor launched by Intel in 2020. At the press conference, more than 50 partners including Tongfang Computer, Aerospace 706, and Lenovo Kaitian also unveiled desktop computers, notebooks and other products based on the Longxin 3A6000; 2) The Longxin 2P0500 is a master control SOC chip suitable for single/multi-function printers. The chip uses a heterogeneous core structure, integrates various functional modules such as DDR3 memory, GMAC, and OTG, etc., and has functions such as printing data reception, analysis, and processing. A single chip can meet a variety of typical application requirements; 3) In addition, the 3C6000 for servers and 2K3000 for mobile desktop terminals currently being developed by the company are also planned to be gradually launched into the market. Subsequent product lines of the company are expected to continue to be upgraded and gradually open to the market. We believe that the company continues to improve product performance and fill the gap with overseas products. In the future, it is expected that the company will gradually develop from the field of information and innovation to open up more space for development; it is committed to building an independent ecosystem and promoting ecosystem construction through open architecture licensing. The company has always strived to build an independent ecosystem, but all links are still weak. In order to build a dragon architecture ecosystem with partners, the company has opened and licensed the Longxin CPU core IP and dragon architecture command system to partners to support partners in developing SOC chip products based on the Longxin CPU core IP and dragon architecture command system.

By opening up licensing the command system, 10 companies signed cooperation agreements with Longxin Zhongke at the press conference to design various SOC chip companies, such as supercomputing chips, special control chips, and memory chips, using CPU cores based on the Dragon architecture. By authorizing the architecture and researching with partners, the company is expected to close the ecological gap as soon as possible.

Company profit forecast and investment rating: As a leader in domestic chips, the company has always been committed to LoongArch architecture research and development and independent ecosystem construction, and the company continues to upgrade its product system, expand ecological partners, and open architecture licensing. As product performance improves and ecology improves, the company's competitiveness is expected to continue to improve, and the company's long-term development is optimistic about the company's long-term development. However, 2023 is in a transition period for credit and innovation, and the company's performance is under short-term pressure. We lowered the company's 2023-2025 net profit to 0.37, 1.09 and 245 million yuan, corresponding to EPS of 0.09, 0.27, and 0.61 yuan, respectively. The current stock price corresponding to 2023-2025 PE values is 1,228, 420, and 187 times, respectively. Maintain a “Recommended” rating.

Risk warning: Product development falls short of expectations, ecological construction falls short of expectations, and progress in domestic substitution falls short of anticipated risks.