Incident: On December 22, 2023, the company issued the “Notice Concerning the Signing of Procurement Contracts by Wholly-owned Subsidiaries”;

On January 15, 2024, the company issued the “Notice Concerning the Company's Foreign Investment”.

Purchase computing power equipment to highlight the company's computing power supply capacity. According to the “Notice Concerning the Signing of a Procurement Contract by a Wholly-owned Subsidiary”, Wuhan Xinlian Microelectronics Co., Ltd., a wholly-owned subsidiary of the company, signed a “procurement contract” with Aishangyou (Beijing) Technology Co., Ltd. on December 21, 2023. The procurement amount is 48 million yuan. The procurement target is ultra-micro server and computing power equipment. The smooth implementation of the contract will have a positive impact on the company's future operation and business development.

It is proposed to invest in strengthening the semiconductor and pan-IT sector layout. According to the “Notice Concerning the Company's Foreign Investment”, the company will cooperate with New Capital Company (NCC). The company will increase the capital of enterprises established by the NCC in China within 18 months. The capital increase amount will not exceed 200 million yuan. After the capital increase is completed, it will hold no less than 51% of the shares in the joint venture. The main business of the joint venture is solid-state drive (SSD) master control chips, data center systems, and enterprise software business. NCC's executive team has extensive experience in the semiconductor field. The company fully stimulates the enthusiasm of employees involved in the joint venture through equity incentives to ensure that the interests of both parties are consistent.

Investment advice: The company's latest layout continues to highlight its strong accumulation in the semiconductor field, further expanding in breadth and depth compared to the previous one. The company also motivates relevant employees through equity incentives to ensure a smooth transformation in the semiconductor sector. EPS for 23-25 is expected to be 0.22, 0.32, and 0.50 yuan, respectively, maintaining a “buy” rating.

Risk warning: Transformation falls short of expectations; semiconductor business development falls short of expectations; industry competition intensifies.