4Q23: Single quarter losses are narrowing quarter by quarter. Smartphone SoC is about to enter the harvest period. The company released a 2023 performance forecast. It is expected to achieve revenue of 2,600 million yuan (yoy: +21.48%), net profit to mother of 510 million yuan (yoy: -102.70%), and net profit after deducting non-return to mother of 660 million yuan (yoy: -76.91%). Based on the median forecast, 4Q23 is expected to achieve revenue of 756 million yuan (yoy: +35.69%, qoq: -3.87%), net profit to mother of 0.84 million yuan (yoy: -28.40%, qoq: +7.03%), after deducting non-net profit of 125 million yuan (yoy: -15.41%, qoq: -10.38%). Although demand for IoT is still lackluster in 2023, the company continued to launch new products, steadily increase its market share in the cellular IoT market, and accelerate breakthroughs in the fields of wearables and feature phones. However, due to intense price competition, gross margin declined sharply year over year, leading to an increase in losses throughout the year. Considering that the 24-year price competition may continue, we lowered our 23/24/25 revenue forecast to 26/34.02/4.784 billion yuan (original value:

27.32/38.75/5.187 billion yuan). Considering the company's scarcity as a domestic baseband chip manufacturer, it gave 8 times 24PS (comparable to the company's consistent expectation of 7x 24PS), with a target price of 65.1 yuan, a “buy” rating.

4Q23 review: Market share increased, short-term gross margin stabilized

In 23 years, the company continued to launch a rich product line with new products, and continued to increase its share in major markets such as cellular IoT CAT1 and CAT4. The 3Q23 company accelerated breakthroughs in the field of feature phones and wearables, and maintained steady shipments in the fourth quarter. 4Q23 revenue remained close to flat month over month, achieving a year-on-year increase of 35.69%. Despite the year-on-year decline in gross margin due to intense price competition for CAT1 products in '23, gross margin has basically stabilized in 3Q23 (3Q: 24.72%). We expect it to remain stable in the fourth quarter, and losses will continue to narrow month-on-month in a single quarter. The company expects to invest 1,117 billion yuan in R&D in 2023 (yoy: +11.11%) due to increased personnel recruitment, equity incentives and product streaming. In addition, due to the return of non-operating expenses and government subsidy proceeds previously accrued as a result of lawsuits, the company's non-recurring income also increased year-on-year in 2023.

2024 outlook: 4G smartphone SoC is about to be mass-produced, focusing on customer introduction progress in the cellular IoT field. The company's 4G product share continues to increase, and is actively promoting the 5G product layout. Currently, the first 5G eMBB chip is about to be shipped. The first 5G REDCap chip has been tested in 3Q23, and the testing situation is in line with expectations. In terms of smartphones, the company launched the first generation of quad-core 4G smartphone SoC in 2023. The first product is mainly aimed at the 4G low-end mobile phone market. Currently, some mobile phone customers have completed end-side tests, and it is expected that 1Q24 will form large-scale sales. The development of the company's next-generation eight-core 4G smartphone platform is nearing completion, and is expected to further cover the demand in the 1,000 yuan market. 5G smartphone chips are expected to be launched in due course in the future.

Investment advice: Target price of 65.1 yuan, maintaining the “buy” rating. We are optimistic that the company will expand from the Internet of Things to a wider consumer electronics market, but considering that price competition may continue in 24 years, we lowered our 23/24/25 revenue forecast to 26/34.02/4.784 billion yuan (original value:

27.32/38.75/5.187 billion yuan). Considering the company's scarcity as a domestic baseband chip manufacturer, it gave 8 times 24PS (comparable to the company's consistent expectation of 7x 24PS), with a target price of 65.1 yuan, a “buy” rating.

Risk warning: Product development falls short of expectations, market competition intensifies, and customer introduction falls short of expectations.