Crystal Integration's 2023Q4 and 2024Q1 performance improved significantly from month to month. The DDIC industry was active in inventory removal, market demand rebounded, and the company's product matrix was further enriched. Maintain a buy rating.

Key points to support ratings

2023Q4 and 2024Q1 results were significantly restored. Crystal Integration's 2023 revenue was 7.24 billion yuan, YoY -28%; net profit to mother was 210 million yuan, YoY -93%. Jinghe Integrated's 2023Q4 revenue was 2.23 billion yuan, QoQ +9%, YoY +43%; net profit to mother was 180 million yuan, QoQ +134%, turning a year-on-year loss into a profit. Crystallization Integrated's 2024Q1 revenue guide was 20.7 billion yuan to 2.30 billion yuan, with a median value of 2.85 billion yuan, YoY +100%; gross margin guidance was 22% to 29%, median guideline value of 25.5%, YoY+17.5pcts. Crystalline Integrated's 2023Q4 revenue was further recovered month-on-month, 2023Q4 net profit increased significantly month-on-month, and 2024Q1 gross margin increased significantly year-on-year.

The DDIC industry is actively removing stocks, and market demand is picking up. Since 2022Q3, downstream demand has declined compounded depreciation and amortization costs, putting pressure on the company's operating income and gross margin. Since 2023Q2, downstream warehousing has achieved certain results. Market demand has begun to pick up, adding incremental benefits from new technology and new products, and the company's operating rate has gradually increased.

The product structure continues to be rich, and technical capabilities continue to be strengthened. The company continued to increase its investment in the 28-55nm process and automotive chip research and development, and achieved remarkable results. 55nm TDDI and CIS products have been mass-produced, further enhancing the competitiveness of the company's products. The 110nm automotive display driver chip has passed the customer's 12.8 inch display assembly reliability test.

valuations

The estimated EPS for the 2023/2024/2025 integration is 0.10/0.41/0.70 yuan, respectively.

As of the close of February 26, 2024, the company's market value was 30.6 billion yuan, corresponding to 2023/2024/2025 PE was 146.0/37.2/21.9 times, respectively.

As the price war in the DDIC industry continued in 2023, the company continued to expand production, and depreciation and amortization expenses rose significantly after the initial investment in the fab was converted, we lowered the company's profit forecast for 2023/2024/2025. We expect the company's 2024 PE to be around 37.2 times. Maintain a buy rating.

The main risks faced by ratings

Market demand fell short of expectations. The competitive landscape in the industry has deteriorated. Product development progress falls short of expectations.