2023Q4 profits beat expectations. Demingli announced its 2023 performance forecast. The company expects to achieve net profit of 0.24-029 million yuan in 2023, a year-on-year decrease of 56.84%-64.28%, and achieve net profit after deducting non-recurring profit and loss of 0.13-018 million yuan, an increase of 13.20% to 56.74% year-on-year. Based on the median profit of 2023 (RMB 0.265 million), net profit attributable to mother was approximately RMB 138 million for 2023Q4, reversing losses significantly from month to month (net profit from 23 Q3 - RMB 32 million), and there was also a significant year-on-year increase (22Q4 net profit of 190 million yuan).
Starting in Q4, the order structure was fundamentally improved, and client product prices were substantially transmitted. The company achieved a gross profit margin of 3.64% in the first three quarters of 2023, of which a gross profit margin of -1.71% was achieved in a single quarter in Q2. The company achieved a gross profit margin of 5.90% in a single quarter in 23Q3, showing a rapid recovery trend from month to month, but it is still relatively limited. We believe that the reason is that Q3 companies still executed many previous low price orders. The price of 23Q4 Nand Flash products has been fixed to a certain extent. Taking the 1Tb Nand Flash wafer as an example, the average spot price continued to rise from a low of $2.78 on July 17 to $5.71 on December 18, an increase of 105.3%. As the new market price was further transmitted to clients after production cuts, the company's profit side achieved significant growth.
Storage prices are expected to continue growing in 2024 due to a strong desire to recover profits from original manufacturers combined with a recovery in demand.
#供给端：分析原厂利润率情况，美光上行周期毛利率维持在46% -47%, net interest rate remained around 30%, FY24Q1 company gross profit margin -0.7%, net profit margin -26.1%. Micron said the current pricing is still far from reaching the required level of return on investment, and plans to strictly control supply and capacity investments. We expect that in 2024, the original factory will continue to resolutely push up the price of storage products in order to recover profits.
Demand for products in fields such as #需求端：当前消费电子、PC has recovered. The penetration of new platform servers is expected to accelerate in 2024. As current inventories in various fields return to normal levels, the demand side is expected to fully rise in 2024. Reduced supply-side production capacity combined with a recovery in demand will further drive product prices to continue to rise.
Inventory size has increased dramatically, and profit elasticity is expected to continue to unleash in 24 years. At the end of 2023Q3, the company's inventory size was 16.1 billion yuan, up 653 million yuan from 953 million yuan at the end of Q2, or +68.5% over the previous month.
Revenue side: Driven by a sharp increase in product volume and price. Embedded and SSD products are in the verification and release stage one after another. The company continues to increase normal wafer inventory, and revenue side flexibility will continue to be realized as the sector cycle increases and the volume of its own products is released.
Profit side: Locking in the low cost advantage. The prices of 2023Q2 and Q3 flash memory wafer products are still in the bottom range. The company strategically stocks low-cost wafers, and profit flexibility will continue to be realized following the price increase driven by this round of production cuts.
Self-developed master control is progressing smoothly, and the profit margin advantage is expected to continue to be consolidated. Main control chips will also be affected by price increases due to demand greater than supply, and main control chips for products such as solid-state drives are more complex in function and higher in value, so module manufacturers can effectively reduce overall costs. The company's TW2985 (SD6.0 memory card master controller) has been verified, TW6501 (SATA SSD master controller) has also completed streaming, and several master control chip projects have also been set up. In the future, the company will continue to increase the mass production and introduction of self-developed main control chips, and the gross margin advantage is expected to be further consolidated.
Profit forecast and investment advice: Our previous profit forecast ($32 million) was slightly higher than the company's 2023 performance forecast guideline range, mainly due to cost growth exceeding expectations. We continue to be optimistic about the company's business development and performance flexibility in the upward cycle, and maintain the report “Demingli:
“Focus on the field of flash memory modules and start the upward cycle” As for the 2024/2025 performance forecast, the company is expected to achieve revenue of 19.83/2,525 billion yuan and YoY +39.7%/+27.4% in 2024/2025, respectively; net profit to mother is 169/225 million yuan and YoY +580.8%/32.9%, respectively, maintaining the “Highly Recommended” rating.
Risk warning: downstream demand falls short of expectations; R&D progress falls short of expectations; inventory removal falls short of expectations.