Incidents:

On January 14, 2024, the company issued the “2024 Restricted Stock Incentive Plan (Draft)”. The number of restricted shares to be awarded under this incentive plan is 18.30 million shares, accounting for about 3.999% of the company's total share capital on the announcement date. The grant price for restricted shares granted for the first time under this incentive plan is 16.30 yuan per share. On January 15, 2024, the company disclosed that one of the controlling shareholders, Linghui Cornerstone, plans to transfer the company's unlimited tradable shares of 23,793,420 shares (5.20% of the company's total share capital) to the Wuxi High-tech Zone New Kinetic Energy Industry Development Fund (limited partnership) at a price of 24.65 yuan/share.

Introduce medium- to long-term equity incentive plans to deeply bind company executives and core team talents. The number of restricted shares to be awarded by the company's incentive plan is 18.33 million shares, accounting for about 3.999% of the company's total share capital on the day the draft incentive plan was announced. Among them, 15.52 million restricted shares were granted for the first time, accounting for about 3.392% of the company's total share capital on the day the draft incentive plan was announced, and 2.78 million shares were reserved. A total of 25 people were awarded incentives for the first time in this incentive plan, including directors, senior managers, core technical/business personnel and other core executives working for the company (including subsidiaries). The grant price for the initial grant of restricted shares is 16.30 yuan/share. New technologies such as artificial intelligence are boosting demand for energy, and geopolitics are reshaping the international semiconductor market pattern. China's storage industry chain is at a critical time for autonomous and controlled development. The launch of this medium- to long-term equity incentive plan is conducive to enhancing the company's competitiveness in the talent market, deeply binding company executives and core team talents, and protecting the company's long-term development and commercialization strategy transformation.

Set performance assessment goals for multiple business lines, demonstrating the company's determination to transform to a commercialization strategy. In response to the company's “distribution+product” development pattern, this incentive plan will separately evaluate the performance indicators at the listed company level, semiconductor product sector, and semiconductor distribution sector on an annual basis during the 2024-2026 fiscal year, as one of the conditions for the incentive target to belong to the current year. At the level of listed companies, the target operating revenue values for the 2024-2026 performance assessment were RMB 152/174/19.8 billion, respectively, and the trigger values were RMB 121/138/15.6 billion, respectively. The target revenue values for the 2024-2026 performance assessment for the semiconductor product sector were RMB2/4/800 million, and the trigger values were RMB1/2/400 million respectively. The target revenue values for the 2024-2026 performance assessment for the semiconductor distribution sector were RMB 150/170/19 billion, respectively, and the trigger values were RMB 120/136/15.2 billion, respectively. The above performance assessment goals demonstrate the company's confidence in long-term steady development and the company's determination to commercialize. The company will take the lead in commercialization strategy transformation and provide localized and customized eSSD/DRAM products around the domestic first-line autonomous computing power ecosystem.

Introduce the New Kinetic Energy Industry Development Fund in the Wuxi High-tech Zone to optimize the equity structure.

Shenzhen Linghui Cornerstone Equity Investment Fund Partnership (Limited Partnership) (hereinafter referred to as “Linghui Cornerstone”), one of the controlling shareholders of the company, signed an agreement with the Wuxi High-tech Zone New Kinetic Energy Industry Development Fund (limited partnership) (hereinafter referred to as “New Kinetic Energy Fund”) to transfer the holding of the company's 23,793,420 tradable shares (5.20% of the company's total share capital) to the New Kinetic Energy Fund at a price of 24.65 yuan/share, with a total amount of 586,507,803.00 yuan. After the transfer of the agreement is completed, the New Kinetic Energy Fund will hold 5.20% of the company's shares. The New Kinetic Energy Fund is the main state-owned venture capital platform in the national high-tech zone of the Wuxi High-tech Zone. The transfer agreement shows that the Wuxi High-tech Zone highly recognizes the company's future development prospects and investment value, helps the company optimize its shareholding structure, and is expected to introduce more local industrial resources to the company in the future.

Investment advice:

We forecast 2023-2025 revenue of 135.17/155.16/17.732 billion yuan, net profit to mother of 3.39/3.93/459 million yuan, corresponding to EPS of 0.74/0.86/1.00 yuan, corresponding to current PE price of 42/36/31 times, giving it a “buy” rating.

Risk warning:

Industry competition increases risk, risk of terminal demand falling short of expectations, risk of supplier dependency, etc.