Matters:

On March 27, 2024, the company released its 2023 Annual Report:

1) 2023: Operating income of 1,477 billion yuan, -18.46%; gross profit margin of 30.75%, -6.18pct; net profit to mother/net profit after deduction of 3.23/304 million yuan, -25.75%/-26.08% YoY;? 2) 2023Q4: Operating income of 372 million yuan, -23.05%/+7.67%; gross profit margin of 31.77%, YoY/ -2.14pct/+1.64pct; net profit to mother of 108 million yuan, +11.03%/+60.86% YoY; net profit without deducting net income of 102 million yuan, +16.05%/+59.35% YoY.

Commentary:

Downstream demand is gradually picking up, compounded by the gradual expansion of new products and fields, and the company is expected to return to its growth trajectory. Affected by the cyclical impact of the industry, the company's 2023 performance was under pressure. Trench MOS/SGT MOS/SJ MOS/IGBT products achieved revenue of 4.54/5.46/1.84/266 million yuan respectively, -9.34%/-19.80%/-13.56%/-33.97% year-on-year. On a quarterly basis, the company's performance inflection point for the second half of 2023 was obvious. Revenue in the fourth quarter was +7.67% month-on-month to 372 million yuan, product structure optimization combined with reduced wafer costs, and gross margin was +1.64pct to 31.77% month-on-month.

With the recovery of downstream demand and the expansion of new products in new fields, the company's performance is expected to return to a growth trajectory in the future.

The company's products continue to be introduced into the field of new energy, and actively explores the AI server market to help long-term development. The company has now launched 200 automotive-grade MOSFET products, and the cooperation with BYD has switched to direct supply, and applied to BYD's full range of models. At the same time, it continues to ship on a large scale to leading domestic Tier 1 companies such as United Electronics and Bethel. Currently, the company has obtained fixed notices for more than 20 automotive electronics projects from United Electronics.

In the field of AI servers, the company develops products around the needs of AI computing power servers. Currently, related products have been sold in batches to leading customers in the AI computing power field, and will grow even more rapidly. The company expects demand for photovoltaic energy storage to pick up in 2024, while sales in new fields are expected to grow at a high rate.

Relying on R&D advantages, the company continuously optimizes its product structure, and the launch of new products is expected to open up a second growth curve. In terms of automotive electronics, the company's four major product platforms, SGT MOS, Trench MOS, SJ MOS, and IGBT, more than 140 typical products have completed product development based on APQP, passed the AEC-Q101 vehicle reliability assessment, and more than 70 products are being certified. In terms of photovoltaic energy storage, the company has developed or is developing many IGBT module products used in the field of photovoltaic energy storage/photovoltaic inverters. In terms of third-generation semiconductors, some of the company's SiC MOSFET products have been verified by customers and sold on a small scale, and some GaN HEMT products have been developed and passed reliability tests. The company's new products continue to break through. In the future, with the support of fabs, new products are expected to rely on existing customer resources to achieve rapid deployment, injecting momentum into the company's long-term development.

Investment advice: The company's product structure is being upgraded from MOSFETs to IGBTs, third-generation semiconductors, etc., and the application fields are making breakthroughs in the fields of new energy vehicles, photovoltaic energy storage, AI servers, etc., and future performance is expected to maintain steady growth. We maintain the company's 2024-2025 net profit forecast of 408/487 million yuan, corresponding EPS of 1.37/1.63 yuan, add 2026 net profit forecast of 604 million yuan, and corresponding EPS of 2.02 yuan. Referring to the industry's comparable company valuation and its own performance growth rate, we gave the company 33 times PE in 2024, corresponding to a target price of 45.1 yuan/share, maintaining a “strong” rating.

Risk warning: Industry sentiment falls short of expectations; product expansion falls short of expectations; product restructuring falls short of expectations; industry competition intensifies.