The Zhitong Finance App learned that Dongwu Securities released a research report saying that as major overseas manufacturers continued to reduce operating rates and remove inventory, the storage sector rebounded from the bottom of 23Q3 and entered an upward channel of price increases. The prices of DRAM and NAND particles have all risen since 23Q4, and there is a clear trend of Wafer's price increase. As major overseas manufacturers actively cut production and price increases combined with AI catalysis, the desire to pull goods downstream is strong, and the shortage of supply in the storage market is remarkable. As demand picks up further, price increases are expected to continue, and volume and price will rise sharply. Furthermore, the penetration rate of high value-added products such as HBM and DDR5 is gradually increasing, which is expected to drive storage prices to rise further.
The views of Soochow Securities are as follows:
The price of storage products continues to rise, which is expected to open up a sharp rise in volume and price.
As major overseas manufacturers continued to reduce operating rates and remove inventory, the storage sector rebounded from bottoming out in 23Q3 and entered an upward channel for price increases. The prices of DRAM and NAND particles have all risen since 23Q4, and there is a clear trend of Wafer's price increase. As major overseas manufacturers actively cut production and price increases combined with AI catalysis, the desire to pull goods downstream is strong, and the shortage of supply in the storage market is remarkable. As demand picks up further, price increases are expected to continue, and volume and price will rise sharply. Furthermore, the penetration rate of high value-added products such as HBM and DDR5 is gradually increasing, which is expected to drive storage prices to rise further.
The industry as a whole is picking up, and the performance of domestic module manufacturers has reached an inflection point.
1) Overseas markets: On the revenue side, the downturn in the storage industry has led to a decline in revenue for many companies, but the development of AI has brought high demand for server and mobile products, and the performance of some companies has rebounded. On the profit side, the overall gross margin of the industry declined sharply in Q1 in 2023, and companies successfully increased profitability by improving product ASP. Companies have narrowed their losses through cost management, and the industry is gradually picking up. The number of inventory turnover days for leading companies has declined, which indicates a gradual improvement in the market environment. On the product side, the utilization rate of the NAND business in 2024Q1 is still low, while HBM and DDR5 production capacity has rebounded, and capital expenditure will focus on this area. Overall, the supply of DRAM and NAND is declining quarterly, and product market prices are expected to rise. According to TrendForce forecasts, NAND Flash 2024Q1 contract prices will increase by 18%-23% during the quarter, and DRAM Q1 will increase by 13-18%. 2) Domestic market: In terms of performance, the vast majority of manufacturers achieved month-on-month growth in 23Q3, and some manufacturers achieved year-on-year revenue growth. With the gradual announcement of the 23-year performance forecast, module manufacturers in Q4 have reached an inflection point in performance.
Improved downstream demand for smartphones, PCs, etc. is compounded by increased demand for new products such as HBM, and the storage industry has sufficient growth momentum.
With the development of digitalization, demand for products such as smartphones, smart wearables, PCs, and servers has increased, leading to an increase in demand for memory chips. Global smartphone shipments reached 326.1 million units in 2023Q4, and global shipments of wearable devices increased 2.6% year-on-year to 150 million units in 2023Q3. According to Gartner data, global PC shipments totaled 63.3 million units in 2023Q4, an increase of 0.3% over 2023Q4. According to IDC data, the global market size and shipment volume of servers is expected to reach US$166.50 billion and 18.851 million units in 2026.
Investment advice: The market is worried that the price increase in the early storage sector was mainly due to production control by overseas manufacturers, and the sustainability is worrying. However, the bank believes that the gradual recovery in downstream demand compounded by demand for new HBM products and the continued increase in DDR5 penetration rate, and the growth momentum of the storage sector continues to pick up. Localization of storage is imperative, focusing on the storage industry chain. Through observations on production reduction actions, inventory and price increases transmission performance improvements of major players in the industry chain, the expansion of production of new products such as HBM and DDR5 from large manufacturers is clear, and breakthroughs in localized storage products and the recovery in AI and downstream demand continue to catalyze. The bank is optimistic about the rebound in storage price increases transmission performance and the main domestic AI computing power storage line at the current point.
Driven by new demand for downstream AI servers, new energy vehicles, etc., and demand recovery in various fields such as consumer electronics, home appliances, and industrial control, the bank believes that the storage sector focuses on two main lines, based on the logic of industrial support and localization substitution:
1) Price increase logic performance rebound targets: Baiwei Storage (688525.SH) (Q4 gross margin increased by more than 13 pcts month-on-month), Demingli (001309.SZ) (reversing losses throughout the year, net profit increased sharply in the fourth quarter), Jiang Bolong (301308.SZ) (revenue broke 10 billion yuan, turning a loss into a profit in the fourth quarter), and Pu Ranran (688766.SH).
2) Targets related to localization of HBM and AI computing power storage: Biwei Storage (integrated manufacturer of R&D and testing), Lanco Technology (300042.SZ) (domestic computing power hub core storage module manufacturer), Shannon Xinchuang (300475.SZ) (domestic core distributor of Hynix), Wanrun Technology (002654.SZ) (close cooperation with major domestic storage manufacturers), Tongyou Technology (300302.SZ), Lanqi Technology (688008.SH), etc.
Risk warning: the risk of price increases falling short of expectations; the risk of changes in the macroeconomic situation; the risk of leading manufacturers cutting production falling short of expectations; downstream recovery falling short of the expected risk.