Incident: On February 23, 2023, Juchen Co., Ltd. released its 2023 performance report. For the full year of 2023, the company achieved operating income of 704 million yuan, a year-on-year decrease of 28.17%; realized net profit of 99 million yuan, a year-on-year decrease of 72.08%; and realized deduction of non-net profit of 87 million yuan, a year-on-year decrease of 77.78%.
The month-on-month improvement in revenue, equity incentives, etc. affected profit performance. In the fourth quarter of a year, the company achieved revenue of 203 million yuan, +9.67% month-on-month, mainly due to the improvement in inventory levels of downstream memory module manufacturers since the fourth quarter, and the increase in DDR5 penetration rate, which had a positive impact on the company's SPD shipments; achieving net profit of 0.16 million yuan, or -13.34% month-on-month. We believe that the main reasons are: 1) the value of Huahong's IPO strategic placement shares held by the company caused fair value changes and losses in Q4; 2) due to the implementation of employee equity incentives in 2023, which had an impact on share payment fees.
Downstream storage is nearing its end, and DDR5 is speeding up penetration. SPD is an essential supporting chip for DDR5 memory modules under JEDEC standards. Affected by factors such as slowing terminal demand and supply chain inventory removal, DDR4 continued to be removed from storage in 2023, and DDR5 fell short of expectations, thus affecting the company's performance. However, we currently think: 1) Server storage is nearing its end. Xinhua's revenue continued to increase from June 2023 to November, increased 23.54% in the fourth quarter of 2023, and continued to increase 13.72% in January 2024. Furthermore, PC shipments are bottoming out, and IDC expects growth to resume in 2024; 2) AI PCs are expected to accelerate DDR5 penetration. Intel will launch Meteor Lake in December 2023, and Arrow Lake is expected to be released in 2024. The memory rate requirements will continue to upgrade, which will further accelerate the DDR5 penetration process. With the penetration of DDR5, the company's SPD shipments are expected to return to rapid growth.
EEPROM is stable, and vehicle regulation storage and OIS have brought marginal growth. The company's EEPROM product line mainly serves the more mature consumer electronics market and industrial market, bringing stable business demand to the company. With the gradual recovery of the consumer electronics market, this part of the company's business is expected to grow steadily. In recent years, the company has also expanded automotive EEPROM, and has become one of the few domestic suppliers that can provide a full range of automotive grade EEPROM chips of A1 and below. In addition, the company's strategic layout is OIS and NOR Flash. Currently, some NorFlash products have been mass-produced, and the company has also cooperated with some leading smartphone manufacturers to develop OIS. With the continuous introduction of vehicle regulation products and the accelerated penetration of OIS, the company's related products are expected to increase rapidly, driving the company's performance growth.
Investment advice: We expect the company's net profit to be 0.99/298/458 million yuan in 2023-2025, respectively, and the current market value corresponding to 2023-2025 PE is 79/26/17 times, respectively. The company's SPD products have resumed delivery, and the company continues to expand high-end fields such as automobiles and industry, and develop new products such as OIS and NOR Flash. The long-term growth curve is clear. Maintain a “Recommended” rating.
Risk warning: New product development and sales progress falls short of expectations; DDR5 penetration progress falls short of expectations; industry competition intensifies.