4Q23: Revenue falls short of expectations, industry recovery still needs to wait

The company announced its 2023 annual results forecast. It is expected to achieve revenue of 65-750 million yuan (yoy: -37.62% to -28.02%) and net profit to mother of -225 to 175 million yuan, turning losses year-on-year, after deducting net profit of -2.56 to -206 million yuan. Based on the median forecast, 4Q23 achieved revenue of 107 million yuan (yoy: -56.18%, qoq: -43.11%), lower than our previous expectations; net profit to mother -62 million yuan (yoy: -3389.55%, qoq: -8.14%). There was a sharp decline in revenue in the fourth quarter, mainly due to weakening demand in the terminal market and inventory backlog in the downstream industry, which led to a year-on-month decline in the company's product shipments. Furthermore, since the company still maintains a high level of investment in R&D, the profit statement once again lost.

Considering that communications/industrial control customer inventory digestion may continue until 1H24, we lowered our 23-25 revenue forecast to 7.02/10.27/1.05 billion yuan (previous value: 8.59/12.79/1,814 billion yuan). Considering that the company is a scarce domestic FPGA supplier, domestic FPGA replacement continues, giving 12x 24PS (comparable to 9x 24PS). The target price is 30.7 yuan, giving it a “buy” rating.

4Q23 review: Communications/industrial customer inventory levels are high, and demand for FPGA terminals weakened in 2023. As of 4Q23, most communication and industrial control customers were still digesting inventory. Despite improvements in consumer customer demand, the company also achieved new project breakthroughs in security, medical care, digital communication, etc., but due to the large share of communications and industrial control in the company's revenue structure, 4Q23 revenue still declined sharply from month to month. From the price side, the prices of the company's main products have remained relatively stable, but there are price discounts for some new market entrants and some small to medium customers. However, considering the continued increase in revenue share of Phoenix series products, we expect 4Q23 gross margin to remain stable month-on-month. In order to further enrich the company's product range and cover more downstream application areas, the company continued to increase investment in product research and development in 2023, and R&D expenses increased significantly over the same period last year.

2024 outlook: Inventory elimination may continue until 1H24, and the introduction of new products is expected to accelerate in the second half of the year. Intel said at the 4Q23 conference that the cyclical adjustment of the FPGA industry is expected to continue until 1H24. We expect downstream FPGA customer inventories to return to normal levels one after another by mid-24, and the company's revenue is expected to reach an inflection point. The introduction of the company's Phoenix series of new products is expected to accelerate in 2024. The PHOENIX1 high-capacity and medium-logic capacity products will be further expanded, and the PHOENIX2 high-capacity products are expected to be mass-produced and shipped. In addition, the FPSoC series product lineup continues to be enriched. The DR1 series FPSoC devices launched in November 23 have integrated high-performance processor systems, FPGA programmable logic units, and NPU acceleration units, which can meet application requirements in the fields of video images, industrial control, robotics, automotive electronics, etc.

Investment advice: “buy” rating, target price 30.7 yuan

We lowered our 23-25 revenue forecast to 7.02/10.27/1.05 billion yuan. Considering that the company is a scarce domestic FPGA supplier, domestic FPGA replacement continues, giving 12x 24PS (comparable company 9x 24PS), a “buy” rating.

Risk warning: Market competition intensifies, production capacity release falls short of expectations, R&D progress falls short of expectations.