Incident: The company released its 2023 performance forecast on January 31, 2024. It is expected to achieve operating income of 5.325 billion yuan in 2023, an increase of 15.60%; it is expected to achieve net profit attributable to mother of 1.95 billion yuan, a year-on-year decrease of 79.23%; and it is expected to deduct non-net profit of -2292 billion yuan, a year-on-year decrease of 63.36%.

Benefiting from the boom in new energy vehicles, the company's revenue is expected to grow steadily year on year in 2023. The main reason is that with the continued prosperity of the global NEV market and the increase in domestic replacement demand, the company adopted a “technology+market” double guarantee mechanism in the field of high-end automotive products, which contributed to the rapid growth of the company's overall revenue and a significant increase in net operating cash flow. In 2023, Q4 is expected to achieve operating income of 1,493 million yuan, up 3.25% year on year and 13.86% month on month; expected to achieve net profit of 589 million yuan, down 169.32% year on year and 133.32% month on month; and expected to deduct non-net profit of 533 million yuan, a decrease of 4.15% month on month. The company's net profit declined year-on-year in Q4 in 2023, mainly due to: 1) The company continued to increase R&D investment in 8-inch power semiconductors, MEMS, connections, etc., while the company greatly increased its R&D efforts in SiCMOSFET and 12-inch products, and R&D expenditure increased dramatically. 2) The company carried out extensive strategic planning and project layout in 12-inch production lines, SiCMOSFET production lines, module packaging and testing production lines, etc., and the resulting upfront costs and fixed costs had a great impact on the company's business performance in 2023.

The consumer electronics boom is recovering, and the MEMS business is developing well: In the high-end consumer sector, the company has the largest and most advanced MEMS foundry in China. The company's products are widely used in terminal products such as branded mobile phones, 5G communications, Internet of Things, AR/VR, and smart home appliances. According to Canalys data, the global smartphone market grew 8% in the fourth quarter of 2023. Canalys predicts that the global smartphone market will expand 4% in 2024. Benefiting from the recovery of the consumer market, the company's MEMS business can be expected to develop. Since the third quarter of 2023, demand for mobile phones and the Internet of Things has returned to an upward trend. Based on this, the company's consumer MEMS production line is full in production and continues to expand its leading edge. The company's high-performance MEMS microphone products have been certified by leading international terminal customers and have achieved large-scale mass production. Currently, the company's high-performance silicon-based microphone MEMS products are widely used in mainstream mobile phone brands in the current market. In addition, the company has taken the lead in undertaking major national science and technology projects such as the “MEMS Sensor Batch Manufacturing Platform” project, a key project of the Ministry of Science and Technology. The company has developed standardized complete manufacturing processes for mainstream applications, focusing on overcoming a series of common key technologies such as high-precision film deposition/growth, high-strength bonding technology, high-compatibility low-temperature processes for sensitive components, and MEMS sacrificial layer release technology for non-destructive integrated devices, providing strong support for the core chip needs of the country's rapidly developing intelligent, IoT and other industries.

Demand in the NEV market is strong, and the continuous release of SiCMOS helps revenue growth: With the rapid increase in the popularity of NEVs, the demand for IGBTs, MOSFETs and other power devices for NEVs and charging piles has also increased dramatically, but in the domestic IGBT and high-end MOSFET markets, foreign manufacturers still occupy a large share. Against this background, China's demand for power devices is expected to continue to grow in the future, and the domestic substitution process is also expected to accelerate. The company's SiC MOS products have broad scope for import substitution. According to Canalys forecasts, global NEV sales are expected to increase 29% throughout 2023; the global NEV market will grow 27% in 2024. The company's SiC MOSFET products have clear and promising market prospects in the field of new energy. In the second half of 2023, the company's SiCMOS production line is in the process of rising production. The monthly SiCMOS production has climbed from 2000 pieces/month in June to more than 4000 pieces/month in September. In H1 2023, the company completed the development of SiC MOSFET technology for high-power modules for in-vehicle main drive inverters, completed process platform construction and reliability certification for some product lines, and entered vehicle mass production.

As of September 2023, the company's monthly SiC MOS shipments reached 4,000 6-inch wafers, 90% of which are used in automotive main drive inverters. At the same time, the company's latest generation of high-performance SiC MOS has been released and samples have been sent, and the performance has reached the world's advanced level. Looking ahead, as product development continues to advance and production capacity continues to be released, the contribution of the company's SiC MOS production line to future revenue will continue to increase.

Lowering the profit forecast and maintaining the “gain” rating: In the second half of 2023, the company achieved large-scale mass production (4,000 pieces/month) of automotive-grade silicon carbide (SiC) MOSFETs used in high-power modules for automotive main drive inverters. With the development of markets such as 5G and new energy vehicles, the scale of demand for silicon carbide (SiC) devices and modules continues to grow rapidly, and there is broad scope for domestic replacement. Looking forward to the future, the company will continue to increase R&D investment to continuously launch new products, rapid technological iteration and capacity expansion of SICMOSFETs, which is expected to inject new momentum into the company's future business development. Considering that in 2023, the company carried out extensive strategic planning and project layout in areas such as 12-inch production lines, SiC MOSFET production lines, module packaging and testing production lines, etc., and depreciation and amortization expenses due to capacity expansion increased dramatically, putting some pressure on profits, and lowered the profit forecast. We expect the company's net profit to be -1.95 billion yuan, -1,166 billion yuan, -629 million yuan, EPS of -0.28, -0.17, and -0.09 billion yuan per share, respectively.

Risk warning: Market competition increases risk, downstream demand falls short of expectations, customer concentration risk, and exchange rate fluctuations affect it.