Matters:

The company released its 2023 financial report. In 2023, the company achieved operating income of 2,338 billion yuan, a year-on-year decrease of 12.73%; realized net profit to mother was -296 million yuan, a year-on-year decrease of 501.64%. The company does not plan to pay a discovery dividend in 2023, no bonus shares, and no capital increase from the capital reserve fund.

Ping An's point of view:

Downstream demand slowed down 23-year performance: In 2023, the global semiconductor industry faced serious challenges, and overall market demand slowed. The company achieved revenue of 2,338 billion yuan, a year-on-year decrease of 12.73%. Among them, semiconductor IP licensing business (including revenue from intellectual property licensing fees and royalties) fell 14.39% year on year, and one-stop chip customization business (including revenue from chip design business and mass production business) fell 12.13% year on year. According to product segmentation, in the semiconductor IP licensing business: revenue from intellectual property licensing fees was 655 million yuan, down 16.56% year on year; number of semiconductor IP licenses was 134, down 56 times from 2022; average revenue from a single intellectual property license reached 4.899 million yuan, up 18.32% year on year; and royalty revenue was 110 million yuan, up 1.27% year on year. One-stop chip customization business: chip design business revenue was 492 million yuan, a year-on-year decrease of 14.05%, of which 28 nm and below process nodes accounted for 86.66%, and 14nm and below process nodes accounted for 56.36%; mass production revenue was 1,071 million yuan, down 11.22% year on year. Looking at downstream application areas, the company's revenue from the IoT sector, consumer electronics sector and data processing sector accounted for 41.12%, 21.94%, and 13.46% respectively in 2023.

Using the capital market platform, the proposed fund-raising projects will focus on the AIGC sector: In December 2023, the company plans to use the capital market platform to enhance capital strength, optimize the balance and liability structure, and raise capital investment for Chiplet Solution Platform R&D projects in the AIGC and smart mobility fields and next-generation IP R&D and industrialization projects for AIGC and graphics processing scenarios. The fund-raising project fully combines the technical advantages of the company's one-stop chip customization service and semiconductor IP licensing service to improve the company's IP reuse, effectively reduce the design costs, risks and R&D iteration cycle of chip customers, and help chip manufacturers, system manufacturers, Internet vendors and other enterprises to quickly develop and continuously iterate their own customized chip products, develop the core technological foundation, and ensure the implementation of industrial upgrades. At the same time, it will consolidate the foundation for sustainable development in various aspects such as business layout, R&D capabilities, financial capacity, and long-term strategy, which is conducive to enhancing the company's core competitiveness, enhancing profitability, providing good returns to shareholders, creating more economic benefits and social value, and promoting the long-term development of the company.

Investment advice: The company is a leading domestic semiconductor IP enterprise. Its main business is one-stop chip customization business and semiconductor IP licensing business. The company's products are widely used downstream, including consumer electronics, automotive electronics, computers and peripherals, industry, data processing, Internet of Things, etc. The main customers include mature chip design companies and IDM, emerging chip design companies, system manufacturers, and large Internet companies. Based on the company's 2023 annual report and industry developments, we lowered the company's net profit forecast for 2024-2025 to 0.20 million yuan and 127 million yuan respectively (previous values were 181 million yuan and 231 million yuan, respectively), and added 2026 to 305 million yuan. EPS for 2024-2026 was 0.04, 0.25, and 0.61 yuan, respectively. The PE corresponding to the closing price on March 29 was 856.2, 138.1, and 57.6 times, respectively. Judging from the on-hand order situation, the company's on-hand order amount at the end of '23 was 2,061 billion yuan, of which the amount of in-hand orders converted within one year was 1,807 billion yuan, accounting for nearly 90%. Furthermore, the current order amount for the chip design business exceeds 1 billion yuan, which is a record high, so the company's 24-year performance is highly anticipated. Furthermore, in the era of artificial intelligence, the company's self-developed GPGPU IP, GPU IP, and innovative AI GPU IP subsystems, as well as edge AI-based AI-ISP, AI-GPU, and IP subsystems based on the company's NPU technology such as AIDisplay and AI-Video under development meet a wide range of artificial intelligence computing needs while demonstrating the company's leading technical capabilities and continuously driving performance growth. Based on the company's leading domestic IP position, we are optimistic about the company's future development and maintenance.” Recommended” ratings.

Risk warning: (1) Risk of iterative upgrading of semiconductor IP technology. If the company cannot continue to obtain an advanced position in the development and application of new technology, it may lead to a decline in the company's position in the industry and market competitiveness, which will adversely affect the company's operations. (2) Supplier EDA and other tool authorization risks. If the supplier stops licensing EDA technology to the company due to drastic changes in the international political and economic situation or other force majeure factors, it will adversely affect the company's operations. (3) Risk of continued development of semiconductor IP licensing services. If the company is unable to continue to expand new customers and maintain cooperation with existing customers, there is a risk that semiconductor IP licensing services will be difficult to continue to develop.