China's storage module giants are at an inflection point. Baiwei Storage is mainly engaged in R&D, design, package testing, production and sales of semiconductor memories. Its main products and services include embedded storage, consumer storage, industrial storage, etc. According to the company's 2023 performance report, the company achieved revenue of 3.618 billion yuan and realized net profit of 588 million yuan to mother. 2023Q4 has reached an inflection point. 2023Q4 is expected to achieve revenue of 1,496 billion yuan, a year-on-year increase of 86.90% and a month-on-month increase of 53.56%; gross margin rebounded 13.51 pcts month-on-month.
Storage industry: The inflection point of 2024 is here. Gartner predicts a 66.3% year-on-year increase in the global storage industry market in 2024, ranking first in all semiconductor segments. According to TrendForce data, DRAM and NAND Flash are expected to continue to rise for 4 consecutive quarters in 2024: (1) DRAM contract prices will rise 13-18%, 3-8%, 8-13%, and 8-13% in 2024Q4, respectively, and are expected to rise 36-63% throughout 2024; (2) NAND FLASH contract prices will increase 18-23%, 3-8%, 8-13%, and 0-5% in 2024Q4, respectively. An increase of 31-58% is expected for the full year 2024.
Embedded storage business: Smartphone customers are expected to continue to break through. The company's embedded storage product types include ePOP, eMCP, eMMC, UFS, BGA SSD, LPDDR, etc., which are widely used in mobile phones, tablets, smart wearables, drones, smart vehicles, and the Internet of Things. The company's revenue in 2022 was 2.177 billion yuan, and we expect the revenue from this business to be 26.95/50.00/7.150 billion yuan in 2023-2025.
Consumer storage business: To-B and To-C continue to grow. The company's consumer-grade storage includes solid-state drives, memory cards, and mobile memory products, which are mainly used in the consumer electronics sector. The company's Biwin (Biwin) brand is mainly aimed at the ToB market such as PC OEMs. Authorized brands such as HP (HP) and Predator (Predator), which operate exclusively, mainly develop the To-C market on online platforms such as JD and Amazon, as well as offline channels such as Best Buy and Staples. The company's revenue in 2022 was 619 million yuan, and we expect the business revenue to be 700/10.00/1,375 million yuan in 2023-2025.
Industrial-grade storage: A breakthrough in automotive products is imminent. The company's industrial-grade storage includes industrial grade SSDs, automotive SSDs and industrial-grade memory modules, etc., which are used in 5G base stations, smart cars, etc. The company's revenue in 2022 was 96 million yuan, and we expect the revenue from this business to be 1010/1.50/193 million yuan in 2023-2025.
Equity incentives demonstrate confidence. “2024 Restricted Stock Incentive Plan” performance assessment target: The company's revenue for 2024/2025/2026 is not less than 50/65/8 billion yuan, and the total market value of the company reaches or exceeds 200/250/30 billion yuan for any 20 consecutive trading days in 2024/2025/2026.
Profit forecast, valuation and rating: We predict that the company's net profit due to mother for 2023-2025 will be -588/26/411 million yuan, respectively, and the current market value corresponds to PE 71/46x in 24-25. The second phase of the National Capital Fund is the second largest shareholder of the company, and the company plans to invest 3.09 billion yuan in the closed testing production line at Songshan Lake in Dongguan. As a leading domestic storage company, the company is expected to benefit from the recovery of the storage industry, and for the first time, coverage was given an “increase in holdings” rating.
Risk warning: Risk of new product shipments falling short of expectations, risk of gross margin fluctuations, and risk of downstream demand falling short of expectations.