Event: On the evening of January 30, the company released its 2023 annual results forecast. According to the company's announcement, it is expected to achieve operating income of about 2,600 billion yuan in 2023, an increase of 21.48%; net profit to mother of about -510 million yuan, a year-on-year decrease of about 102.70%; net profit after deducting non-return to mother of about -660 million yuan, a year-on-year decrease of about 76.91%.

Revenue grew steadily in 2023, and gross margins were under pressure due to competitors' price cuts. The company achieved steady growth on the revenue side throughout the year. Looking at 23Q4, the company expects to achieve revenue of about 756 million yuan, an increase of about 35.73% year-on-year and a decrease of about 3.94% month-on-month. On the profit side, in the 23Q4 single quarter, the company is expected to achieve net profit attributable to mother - 84 million yuan, a year-on-year increase of about 29.23% and a decrease of about 6.67% month-on-month; net profit deducted from non-return to mother in the single quarter - 125 million yuan, and losses increased by about 15.74% year-on-year, and an increase of about 10.62% month-on-month. In 2023, due to price cuts in major competitors, the company adjusted its price strategy to meet the challenges of the market environment, causing the gross margin of chip product sales to drop significantly compared to 2022. In addition, the company's R&D investment also increased in 2023, leading to an increase in the overall scale of losses. As the company's R&D investment in the early stages of introducing new products into the market is gradually realized, the company is expected to reduce losses in the future.

New cellular baseband chips were successfully shipped in '23, and the first year of the company's smartphone chips began in '24. (1) Cellular baseband chips: The new generation chip series in 2023 has been fully launched on the market, and the market feedback is good. Cellular baseband chip shipments in the first three quarters of 2023 increased by more than 40% compared to 2022; honeycomb baseband chip shipments in the third quarter increased by more than 30% compared to the second quarter. In terms of 5G product promotion, mass production of the first 5G eMBB chip is being actively promoted; the first 5G REDCap chip was tested in the third quarter of 2023, and the testing situation was in line with expectations. (2) Smartphone chips: The company's 4G smartphone chips are progressing smoothly and are expected to be gradually mass-produced in the first half of 2024. On the basis of sales of 4G smartphones and 5G IoT chips, the company will also launch corresponding 5G smartphone chips in due course.

Chips help Electric Power Hongmeng OS, and equity incentives gather core talents. The company values core R&D talents and has confidence in the company's long-term development. On October 27, 2023, the company released the “2023 Restricted Stock Incentive Plan (Draft)”. The 2024/2025/2026 performance assessment target is based on the company's 2022 operating income, and the revenue growth rate is not less than 35%/60%/90%. In addition to traditional business, the company is also seizing emerging opportunities in the IoT industry. As an ecological partner of the Open Atomic Open Source Project, the company continues to develop a variety of products that can be applied to fire safety, smart white goods, smart home decoration, and smart audio and video industries. In response to Dianhong IoT Operating System, the first domestic power IoT operating system released by China Southern Power Grid Corporation and the Open Atom Open Source Foundation, the company became a chip supplier for the Dianhong operating system with the self-developed Wi-Fi+BLE Combo SoC chip ASR5822S.

Investment advice: We are optimistic about the expansion of the company's mobile smart chip business in 24. We expect the company to achieve revenue of 26.04/33.98/4.557 billion yuan in 23-25 years, and achieve net profit of 5.10/-4.40/ -0.29 billion yuan. The PS corresponding to the January 31 market value is 7/6/4 times, respectively, to maintain a “buy” rating.

Risk warning: Unprofitable risk, technology iteration and substitution risk, market competition risk, trade friction risk.