Event: On November 28, the company held the 2023 Longxin Product Release and User Conference to officially release the new generation of general-purpose processor Longxin 3A6000 and printer main control chip Longxin 2P0500 products.

The performance of the 3A6000 is in line with Intel's 10th generation Core, and the printer's main control chip, 2P0500, was released on a major scale. The company officially released the new generation quad-core processor 3A6000 based on the Dragon architecture. It has four physical cores/eight logic cores, a main frequency of 2.5 GHz, uses the fourth generation 64-bit microarchitecture LA664, supports multi-threading technology (SMT2), supports dual-channel DDR4-3200 memory, integrated secure and trustworthy modules, and supports secure boot and national secret algorithms (SM2, SM3, SM4), etc., and its performance has reached the mainstream level of the market, benchmarking Intel's tenth generation Core quad-core processor. Up to now, more than a dozen machine/ODM companies will release 3A6000 complete machine products; subsequent companies will launch desktop products such as 3B6000 and 3B7000. Furthermore, in Longxin's “Three Musketeers,” the server-side 3C6000 has now been designed, and streaming will be delivered soon; the notebook 2K3000 has completed front-end design. As the innovation market gradually recovers, the subsequent performance of the company's products is worth looking forward to. At the same time, the printer main control chip, Longxin 2P0500, was also released today. It is the first printer main control chip in China based on an autonomous command system. It uses a heterogeneous core structure, integrates various functional modules such as DDR3 memory, GMAC, OTG, etc., and has functions such as print data reception, analysis and processing, print engine control, scanning timing control, motor control, etc., and a single chip can meet various application requirements such as printing, scanning, and copying. The 2P0500 will complete commercialization work by the end of 23, and will be compatible with domestic printer brands such as Great Wall and Han Guang.

Performance is under pressure in the short term, and implementation of the “point-to-point integration” policy can be expected in the future. As of 23Q3, the company achieved revenue of 390 million yuan, a year-on-year decrease of 18.5%; net profit of net income was 210 million yuan. By product, 1) Industrial control chips achieved revenue of 130 million yuan, a year-on-year decline of 40.0%, mainly due to the continued downturn in the information and innovation sector, leading to a decline in sales of high-reliability chips; the gross profit margin was 67.3%, down 8.1 pp from the previous year. 2) Information technology chips achieved revenue of 0.7 billion yuan, a year-on-year decline of 50.7%, mainly due to continued adjustment and stagnation in the e-government market, low chip sales and a high share of amortization; gross profit margin was 11.7%, a year-on-year decline of 9.8 pp. 3) The solution achieved revenue of 190 million yuan, an increase of 54.9% over the previous year, mainly due to a sharp increase in server (board) sales, and cloud terminals (boards) began to be shipped in small batches in Q3; gross profit margin was 22.2%, down 15.1% year on year. The company adheres to the policy of “point-to-point integration”. While continuously improving the cost performance ratio of general-purpose CPUs and improving the Dragon architecture software ecosystem, the company customizes special chips and solutions according to specific application requirements to enhance competitiveness in the open market.

Profit forecasts and investment advice. We expect the company's revenue to be 7/13/1.5 billion yuan in 23-25, respectively, and the compound growth rate is expected to reach 27.7% in the next three years. Considering that the company's new product 3A6000 is competitive in terms of cost performance and performance, the launch of the new product is proceeding in an orderly manner, and the volume is imminent, we gave the company a 50 times PS valuation, corresponding to the target price of 157.76 yuan, maintaining the “buy” rating.

Risk warning: Risks such as product development progress falling short of expectations and failure of the innovation market to recover as expected.