Revenue for 23 exceeded expectations, and 4Q23 turned a loss into a profit. He is optimistic that the 24-year performance will continue to improve. Jiang Bolong issued a performance forecast. The operating revenue for 2023 is expected to be 10 billion yuan to 10.5 billion yuan, up 20.1% to 26.1% year on year, and the median value is higher than our expectations (9.05 billion yuan). The estimated net profit is -800 million yuan to -860 million yuan, down -218.3% -209.9% year on year, and the median value is better than our expectations (-90 million yuan). The main reasons for the increase in revenue and the decline in net profit are: 1) The 1H23 storage industry is affected by downstream terminal demand, and the downturn cycle is lengthening. 2) Production cuts in 3Q23 storage factories led to higher prices and a recovery in profits. 3) The company's production line is further expanded, and the Lexar brand value continues to be explored. Looking ahead to 24 years, we are optimistic: 1) The industry's supply and demand structure will be further optimized, profitability will gradually recover, and module manufacturers will fully benefit. 2) The layout of the main control chip and packaging and testing process is expected to drive an increase in gross margin. We gave the 23/24/25 EPS forecast -2.0/1.4/2.9 yuan. Considering the characteristics of the module industry and the company's leading position, we gave it 4.0x PS for 24 years (comparable Wind with a consistent expected average of 4.1), and the target price was 128.5 yuan, maintaining the purchase rating.

2023: Q4 has turned a loss into a profit, with annual sales exceeding 10 billion yuan for the first time in 4Q23. The company expects net profit to increase by 116.9% to 160.8% year-on-year to reach 123 million yuan to 83 million yuan (QoQ: 108.0% to 128.9%), turning a loss into a profit during the quarter. We have seen that demand for terminals has picked up since Q3, and storage prices have rebounded due to the continued reduction in supply from the original factory. The company turned a loss into a profit in Q4, and annual sales exceeded 10 billion yuan for the first time. Looking back at 2023, we see the gradual expansion of the company's product line: 1) The marketization of enterprise-level products has been further implemented, and the company's products have passed important customer certifications such as Lenovo, JD Cloud, and BiliBili. 2) Master control chips have made breakthrough progress and are gradually being introduced into mass production, which will improve the competitiveness of module products and bring a certain gross margin advantage.

2024: Optimistic about the continuous optimization of the supply and demand structure. The upward cycle will drive profit growth in 2024. 1) Storage cycle: Hynix's 4Q23 results will indicate that profit in 2024 is still the primary goal. We believe that the supply and demand structure will continue to be optimized, driven by continued supply and production limits in the storage industry and a gradual recovery in demand. We expect 1Q24 prices to continue to rise, driving the industry's profit recovery; 2) Embedded storage and PC modules: mass production of AI phones and AI PCs is expected to start a new wave of rotation and drive a return in demand for terminals. 3) Enterprise-grade storage: We believe data center demand is expected to gradually recover in 2024, while Xinchuang's demand will drive new growth in the company's enterprise storage eSD and RDIMM products. 4) New product development: The company continues to launch vehicle grade storage module products and new main control products, which will each bring new revenue growth points and increased gross margin to the company.

Target price is $128.5, maintaining the buy rating

We believe that with the gradual optimization of the supply and demand structure of the storage industry, the overall profitability of the industry will gradually increase. The estimated net profit for 23/24/25 is -8.3/5.7/1.18 billion yuan (original value: -9.0/40/950 million yuan).

Considering the characteristics of the module industry and the company's leading position, 4.0 x 24 year PS (comparable to Wind, average expected value of 4.1) was given, and a target price of 128.5 yuan (previous value: 129.0 yuan) was given, and the purchase rating was maintained.

Risk warning: Downstream demand recovery falls short of expectations, risk of storage price fluctuations.