Event: The company released its 2023 performance forecast. In 2023, the company expects to achieve operating income of 10-10.5 billion yuan, a year-on-year increase of 20.05%-26.05%; net profit to mother of -8.0 to -860 million yuan, a year-on-year decrease of 1198.95%-1281.37%. In the fourth quarter of 2023, the company expects to achieve operating income of 3.42 to 3.92 billion yuan, an increase of 101% to 130% year-on-year, and a month-on-month increase of 19%-37%; net profit to mother of 0.23 to 83 million yuan, an increase of 117%-161% year-on-year, and a year-on-year increase of 108% to 129%.

Comment: Revenue for the full year of 2023 exceeded 10 billion yuan for the first time, and 23Q4 performance improved dramatically. It is expected to turn a loss into a profit. Net profit increased by more than 100% year on month. The storage cycle has bottomed out, and NAND prices may rise by another 50% in the short term. It is expected that NAND will account for about 90% of the company's product line. It is expected to fully benefit from the NAND price increase. It is optimistic that the recovery of the storage cycle, the performance volume of core products such as eSSD, increased vehicle market share, and the vertical industrial chain layout will drive the company's rapid development.

The effects of production cuts by original manufacturers on the industry side are showing. The storage spot market follows the rise in resource costs. It is expected that in 2024, industry supply will fall below the demand for NAND and DRAM, and the price of storage products is expected to continue to grow. Jiang Bolong's NAND products account for the vast majority, and it is expected that they will continue to benefit. On the supply side, original manufacturers such as Micron and Samsung announced production cuts in 2023. According to Micron Technology's financial quarter data for September to November 2023, the number of inventory turnover days dropped to 159 days compared to 170 days in the previous quarter. Micron's FY2024 bit supply growth plan is far below the increase in demand for DRAM and NAND. Micron will reduce the number of inventory days in FY2024, and the CFM flash memory market expects industry supply to fall short of DRAM and NAND demand in the 2024 calendar year. On the demand side, according to CFM flash market forecasts, 1) After a double-digit percentage drop in data center server shipments in 2023, total server shipments will increase by a mid-single digit percentage in 2024. 2) After two consecutive years of double-digit percentage declines, PC sales will grow by as little as a mid-single digit percentage by 2024. 3) In the mobile sector, smartphone demand is showing signs of recovery, and smartphone shipments will increase slightly in 2024. 4) The spread of artificial intelligence at the edge of industrial and automotive markets continues to increase, and demand for memory will also increase significantly. Industrial PCs that support artificial intelligence will increase the memory capacity by 3-5 times compared to standard PCs, and edge video security cameras that support AI will increase the memory capacity by 8 times compared to standard non-AI video cameras.

In terms of price, Trendforce estimates that NAND Flash contract price will increase by 15-20% in the first quarter of 2024 and DRAM contract price will increase by 13-18% in the first quarter of 2024, with MobileDram continuing to lead the rise. NAND is expected to account for about 90% of Jiang Bolong's product line, and the company is expected to benefit from the recovery of the storage industry in 2024 and achieve steady high growth.

As the world's leading integrated semiconductor storage leader, the Lexar+Foresee brand value continues to be demonstrated. Jiang Bolong is mainly engaged in the R&D, design and sales of Flash and DRAM memories, providing consumer, industrial grade, automotive-grade memory and industrial storage software and hardware application solutions. The company independently nurtures the brand FORESEE for the industrial market TOB+ and acquires Lexar to explore the high-end consumer ToC storage market. The brand revenue structure is continuously optimized, focusing on industry applications and high-end consumer markets. In addition to its own brand FORESEE, the company incorporated Lexar into its layout in 2017. Lexar focuses on high-end consumption, which is an important process for the company to expand overseas markets. From January to September 2021, the company ranked in the top 2 in the global market share of memory cards for mobile storage products, and in 2020, the market share of eMMC for embedded storage products ranked 7th in the world. The company relies on the Lexar brand to focus on the high-end consumer market. From 2019 to 2021, Lexar ranked 3rd in the world in the field of memory cards and flash drives. The global sales revenue of the 2023H1 Lexar (Lexar) brand business reached 956 million yuan, achieving a year-on-year increase of 26.08% against the backdrop of serious pressure on the global storage industry. The influence of the Lexar (Lexar) brand in the global storage to C market was further highlighted. The retail business covered 52 countries. The sales revenue of the Lexar (Lexar) brand in the Middle East, Oceania, and South Asia (such as India) increased markedly. The corresponding market increased by between 42% and 82% year-on-year, making up Lexar ( (Lexar) A new force in the growth of the brand's global sales revenue.

AIGC's demand for AI servers has increased exponentially, and China's enterprise-grade solid-state drive market share needs to be increased urgently. Xinchuang will bring about a trend of localizing server memory, and mass production and shipment of the company's eSD and RDIMM products is expected to lead to rapid growth in subsequent performance. The number of parameters in each generation of GPT models is growing rapidly. Unlike computing power, which focuses on “computation,” data storage capacity is a reflection of the comprehensive ability to process data production factors. When storage efficiency is low, computing power is difficult to play a role. Currently, China's depository investment ratio is clearly unbalanced compared to the US and Western Europe, and storage may become a shortcoming in economic development, especially in the field of high computing power. As a product of big data+big model+big computing power, ChatGPT may drive an exponential increase in AI servers. AI servers can have eight times the DRAM capacity and three times the NAND capacity of conventional servers. In 2021, original international storage manufacturers such as Intel, Samsung, and Micron accounted for more than 70% of the Chinese enterprise-grade SSD market share, dominating the market. As the country's emphasis on autonomous and controllable data security continues to increase, memory, as a direct carrier for data storage, plays a key role in the implementation and implementation of data security and controllable strategies. With the promotion of national policies, while the operator-based public cloud market ushered in development, customers will also consider adopting more domestic eSSDs based on considerations such as localization and security. By the end of 2023, the company's eSSD and RDIMM products had passed certification from important customers including Lenovo, JD Cloud, and BiliBili, and had obtained formal orders from some customers to achieve mass production and shipment. The mass production and shipment of the company's eSSD and RDIMM products represents new progress in the key market of enterprise storage, which will bring new incremental growth to the company's performance. The company's enterprise-grade storage products received bulk orders from some customers in 2023, which will lay the foundation for rapid growth in 2024.

Improve the industrial chain layout and successfully acquire Yuancheng Suzhou and Zilia Brazil (formerly SMART Brazil) to build a high-end packaging testing center, balance local and overseas industrial chains, and better enhance technical strength and expand market share through integrated resources. On October 1, 2023, the company acquired 70% of the shares of Licheng Technology (Suzhou) Co., Ltd., officially completed the settlement, and was included in the scope of Jiang Bolong's consolidated statement on October 1, 2023. After the transaction is completed, Yuancheng Suzhou will officially operate independently and continue to undertake sealed testing services for the existing customer base. In addition, Yuancheng Suzhou will also further increase its investment in R&D and packaging testing processes, actively introduce high-end packaging testing equipment and outstanding talents in the industry, and continue to improve packaging testing capabilities to build a high-end package testing base to better provide high-quality services to customers in various fields such as artificial intelligence, high-performance computing, smart cars, smart phones, and smart wearables. As a concrete measure for Jiang Bolong to strengthen the manufacturing side layout, the company is expected to further enhance memory chip packaging testing capabilities and capacity utilization, improve the industrial chain layout, strengthen business partnerships with original storage wafer manufacturers, form joint efforts in various areas such as improving product quality, responding quickly to customer needs, flexibly customizing product specifications and providing stable production capacity, enhance the company's market influence and core competitiveness, and ultimately enhance the company's long-term profitability and achieve the strategic layout of the company's semiconductor storage brand. In November 2023, the company successfully acquired 81% of Zilia Brazil (formerly SMART Brazil), focusing on expanding its main business and boosting the Brazilian market. SMART Brazil has been deeply involved in storage manufacturing for 20 years. After the acquisition, along with Jiang Bolong's strong firmware capabilities, it is expected to further increase its market share. Achieve 1) a combination of strong sealing and testing and firmware capabilities 2) explore a broad space in the Brazilian market 3) optimize the company's overall profit level.

A major breakthrough has been made in the vehicle grade storage market. The company has the qualifications and ability to serve the global automobile market, and is optimistic that the high demand for smart cars and the increase in performance will be brought about by mass production and shipment of the company's vehicle grade products. In December 2023, Jiang Bolong successfully obtained the world's leading certification body German T? V Rheinland's IATF 16949:2016 quality management system certificate and ISO 9001:2015 quality system certification. Previously, the company's automotive-grade eMMC and UFS had passed the AEC-Q100 certification, the core standard system for the automotive electronics industry. UFS2.1 products have completed product verification on multiple automotive clients. According to customer project progress, mass production and shipment is expected to begin in the first half of 2024. At the same time, the company has also completed product design and verification of second-generation vehicle grade UFS products, and has begun to send samples for verification to strategic automotive customers, which will further expand the company's vehicle market share. Through in-depth cooperation with Tier 1, the company has entered the supply chain systems of relevant car companies, and is widely used in mainstream automobile brands such as Xiaopeng, BYD, SAIC, and GAC. It has also developed autonomous and controllable Flash firmware development technology, including automotive storage functions such as pSLC partitioning, intelligent temperature control, and AES256 encryption algorithms, which can give more possibilities for smart car applications.

Investment advice: Due to the obvious results of measures such as production cuts and capital expenditure cuts from the original manufacturer, the storage industry has begun to emerge from a downward cycle. We raised our profit forecast. We expect the company's net profit to be raised from -9/4.76/656 million yuan to -8.3/8/1.05 billion yuan in 2023/2024/2025, maintaining the company's “buy” rating.

Risk warning: Sales areas are concentrated, labor costs are rising, R&D and technical personnel are lost, cycle recovery, and the implementation of Xinchuang and ChatGPT falls short of expectations; the performance forecast is a preliminary estimate. The specific financial data is subject to the company's disclosure announcement.