Incident: The company released its 2023 annual report. In 2023, the company achieved operating income of 703 million yuan, a year-on-year decrease of 28.25%; realized net profit of 100 million yuan, a year-on-year decrease of 71.63%.

Comment:

DDR5 drives the company's long-term growth. DDR5 memory module refers to 5th generation double data rate synchronous dynamic random access memory. It has the advantages of faster speed, lower power consumption, and higher bandwidth compared to DDR4 memory modules, and was officially commercialized in the fourth quarter of 2021. The company is one of the few companies in the industry with a complete SPD product portfolio and technical reserves. The company cooperated with Lanqi Technology to develop SPD products supporting next-generation DDR5 memory modules (mainly including UDIMM, SODIMM, RDIMM, and LRDIMM). We believe that the company is expected to benefit from the increase in DDR5 penetration rate, SPD products are expected to become an important driving force for the company's performance growth, and the company has sufficient momentum for long-term growth.

EEPROM products benefit from the growth of the automotive industry. The company is the world's leading EEPROM chip design company, and is one of the few companies in the industry that also has the ability to develop and design industrial-grade EEPROM products and automotive-grade EEPROM products. Automotive-grade EEPROM products have more reliable performance, stronger temperature adaptability and anti-interference ability, and are widely used in fields such as automotive intelligent cockpits, visual perception, chassis and body, and three-electric systems for new energy vehicles. The company has accumulated good brand recognition and high-quality customer resources at home and abroad. The company's EEPROM product line is rich, with characteristics such as high reliability, wide voltage, high compatibility, and low power consumption. It was rated as a famous brand product in Shanghai from 2013-2019. Some specifications and models of EEPROM products were selected in the “Shanghai Innovative Product Recommendation Catalogue” in 2023.

NOR Flash is expected to provide a new growth curve. The company has developed a series of NOR Flash products with independent intellectual property rights based on the NORD process platform, and the product capacity covers the 512 Kb to 32 Mb capacity range. Compared with similar products on the market, the NOR Flash product developed by the company has more reliable performance and greater temperature adaptability. The number of times it can be erased has increased from 100,000 times to more than 200,000 times, the data retention time is more than 50 years, the applicable temperature range is -40℃ to 125℃, and it has reached the leading level in the industry in terms of key performance indicators such as power consumption, data transmission speed, ESD and LU.

Profit forecast, valuation and rating: According to the company's announcement, in 2023, the company was affected by factors such as the decline in the boom in the terminal electronics industry and adjustments in procurement and inventory strategies of downstream module manufacturers, and the development of some of the company's businesses was under great pressure. We expect the impact is likely to continue. We lowered the company's net profit forecast for 2024-2025 to RMB 280/365 million, a decrease of 60%/57% from the previous one. The net profit forecast for the new company in 2026 was 478 million yuan, corresponding to PE31/24/18X. We are optimistic about the long-term growth momentum that DDR5 and vehicle standard products will bring to the company, and maintain a “buy” rating.

Risk warning: Consumer electronics growth is slowing; gross margin is at risk of decline.