Incident: On February 26, Demingley announced its 2023 annual report. The full year of 2023 achieved revenue of 1,776 billion yuan, +49.15% year over year; realized net profit of 25 million yuan, -62.97% year over year; realized net profit without return to mother of 15 million yuan, +26.66% year over year.
The volume and price of NAND flash memory rose sharply, and Q4 performance increased significantly from month to month. Looking at the fourth quarter alone, the company achieved revenue of 800 million yuan, +124.60% year over month, +107.32% month on month; gross profit margin of 32.55%, up 26.65 pct month on month; net profit to mother of 136 million yuan, +1468.38% year over year, reversing losses from month to month. The company's quarterly performance continues to recover. We believe that the main reasons are: 1) the original storage factory continued to cut production, NAND supply was tight, and prices rebounded at the bottom of Q3 2023; 2) the bottom of the company began to stock up on low-cost wafers. At the end of 2023, the company's inventory was 1,932 billion yuan, an increase of 1,177 billion yuan over the same period. At the same time, the company actively expanded its end customers and sales channels, and the company's revenue performance increased dramatically.
Production control+demand is improving, and storage prices are trending upward. The original manufacturer continued to cut production. Coupled with the marginal increase in demand for downstream PCs and mobile phones since Q3 2023, high-capacity DRAM and NAND have been rising since August 2023. Flash wafers in particular have continued to be in high demand. Looking back, we believe that demand for PCs and mobile phones is rising marginally, AI applications will continue to drive storage expansion, while the original factory continues to cut production, and prices are expected to continue to rise in the future. According to TrendForce's forecast, Q1 DRAM will continue to increase 13-18% quarterly in 2024, NAND flash memory prices will increase 18-23%, and continue to increase in subsequent quarters.
Expand solid-state drives and embedded storage, and develop self-developed master controls to steadily improve product competitiveness. The company continues to focus on the development of master control chips. Self-developed SD6.0 memory card main control chips and SATA SSD master control chips completed chip certification in 2023, and actively promoted the development of PCIe, UFS, and eMMC main control chips. Self-developed main control chips can effectively improve the stability and cost advantages of the company's module products. In addition to mobile storage, the company is actively developing new product lines, building sales teams for new product lines of high-end solid-state drives and embedded storage, focusing on applications such as consumer electronics, automotive electronics, servers and data centers, and has established new subsidiaries such as Huakun Dekai and Zhiyang Storage with joint ventures with industrial backgrounds to promote business development in the company's industry market and overseas markets. At present, the company has achieved initial results in the verification of some customers and the introduction of products.
Investment advice: We expect Demingli's net profit to be 4.21/5.48/617 million yuan in 2024-2026, corresponding to 2024-2026 PE 24/18/16 times. Storage prices will continue to rise, and the company's performance flexibility can be expected. Moreover, in the long run, the company's self-developed main control chip model consolidates the advantages of the industrial chain, and the products have been upgraded from mobile storage to solid state drives and embedded storage, and the growth path is clear. Maintain a “Recommended” rating.
Risk warning: Downstream demand recovery falls short of expectations; main control chip development and technology iteration falls short of expectations; risk of fluctuating storage wafer prices; risk of high concentration of raw material suppliers