Incident 1: The company issued a draft restricted stock incentive plan for 2024. The number of restricted shares to be granted to the incentive target is 18.3 million shares. Of these, 15.52 million shares were granted for the first time, and 2.78 million shares were reserved, accounting for 3.39% and 0.61% of the company's total share capital, respectively. The initial award price was 16.30 yuan/share, and the incentive target was a total of 25 people, including company directors, executives and core technical personnel. The total cost of the initial grant of equity is estimated to be $230 million, with amortization of $137/0.27/0.02 million for 2024-2027, respectively.

Incident 2: Shenzhen Linghui Cornerstone Equity Investment Fund Partnership (Limited Partnership), one of the controlling shareholders of the company, and the Wuxi High-tech Zone New Kinetic Energy Industry Development Fund (hereinafter referred to as the “New Kinetic Energy Fund”) signed a “Share Transfer Agreement on Shannon Xinchuang Technology Co., Ltd.” to transfer 23.79 million shares of the company's unlimited tradable shares to the New Kinetic Energy Fund under a 24.65 yuan/share agreement, with a total amount of about 587 million yuan. After the transfer of the above agreement is completed, New Kinetic Energy Fund will hold 5.20% of the company's shares.

Comment:

The incentive mechanism is clear, and the module business is included in the assessment: the target of this incentive plan for listed companies is to reach 152/174/19.8 billion yuan in revenue for 2024-2026, respectively. The company assessed the distribution business sector and the semiconductor product sector separately. Among them, the distribution sector's assessment target was to reach 150/170/19 billion yuan in 2024-2026, respectively, and the assessment target for the semiconductor product sector was to reach 2/4/800 million yuan in 2024 to 2026, respectively.

According to Shannon Xinchuang's announcement on May 26, 2023, the company cooperated with various parties to jointly initiate the establishment of Shenzhen Haipu Storage Technology Co., Ltd. The proposed business is mainly the design, production and sale of SSD storage products.

The company integrates global resources, designs enterprise-grade SSDs equipped with domestic main control chips and domestic firmware, and realizes industrialization. Through technology accumulation, the company establishes domestic enterprise-level storage technology standards and establishes a localized brand in the medium to long term, break the technology monopoly, and promote the domestic replacement process of enterprise SSDs in China.

Layout of Wuxi, entry of state-owned assets: The People's Government of Xinwu District of Wuxi City holds 100% of the New Kinetic Energy Fund's executive partners through its investment holding group, and also holds several LPs of the fund. The storage industry chain is deeply laid out in Wuxi City, and internationally renowned storage companies such as Hynix have settled in. This time, Wuxi state-owned assets have invested deeply in Shannon Xinchuang, which is conducive to the company's future collaborative expansion of local business.

Profit forecasting, valuation and ratings: Affected by the downturn in the storage industry cycle, we lowered the company's net profit to the mother in 2023 to 333 million yuan (6.20% reduction), maintaining the forecast for 2024 and 2025. We estimate that the company's revenue for 2023-2025 will be 115.25/153.67/ 17.486 billion yuan, respectively, and net profit to mother will be 333/3.84/429 million yuan, respectively. The PE corresponding to the current market value is 43/37/33 times. Considering that the storage industry cycle is bottoming out and the company's new layout of storage modules, we maintain the company's “gain” rating.

Risk warning: Industry recovery falls short of expectations, AI demand falls short of expectations, and new business expansion falls short of expectations.