2023: Downstream storage led to a decline in SPD revenue. The company's short-term performance was under pressure. The company released the 2023 annual report, achieving annual revenue of 703 million yuan (yoy: -28.25%), net profit of 100 million yuan (yoy: -71.63%), and net profit of 88 million yuan after deducting non-return to mother (yoy:
-77.52%). Of these, 4Q23 achieved revenue of 202 million yuan (yoy: -23.22%, qoq: +9.24%) and net profit to mother of 17.94 million yuan (yoy: -81.19%, qoq: -4.86%). In 2023, SPD revenue/sales declined sharply year-on-year due to memory module manufacturers leaving warehouses and suspending procurement. The above product structure changes led to a year-on-year decline of 20.44pct to 46.59% in 2023. At the same time, the company still maintained a high investment in R&D, and R&D expenses increased by 19.98% to 161 million yuan, putting pressure on short-term performance, but SPD sales and revenue have increased significantly from month to month since December. We expect net profit to be 3.40/5.44/702 million yuan for 24/25/26. It will take some time to consider fixing business requirements other than SPD. We will give 35x 24PE (comparable to the 43x 24PE expected by the company Wind 1), with a target price of 75.3 yuan, maintaining a “buy” rating.
23-year review: 4Q23 SPD sales increased sharply from month to month. Memory module customers went to the warehouse to report by product in 2023:1) Memory chips achieved revenue of 562 million yuan (yoy: -34.24%). SPD sales fell short of expectations, causing the gross margin of storage chips to drop 19.6 pct to 51.82% year on year. Automobile EEPROM sales and revenue increased steadily in 23, and next-generation products such as 1.2V smartphone camera EEPROM were shipped in large quantities in '23; 2) Voice coil motor driver chips achieved revenue of 87.16 million yuan (yoy: +52.46%), and sales increased 64.95% year over year. The company delivered 1.2V/1.8V logic level adaptive mid-loop voice coil motor driver chips and closed loop voice coil motor driver chips of some specifications to some customers; 3) Smart card chips achieved revenue of 53.4 million yuan (yoy: - 22.68%),
Gross profit margin fell 10.5pct to 43.76% year over year, mainly due to increased price competition.
24 Outlook: SPD is expected to resume high growth, and OIS voice coil motor drivers will break through. Micron previously anticipated that the DDR5 penetration rate of global servers will reach 50% by the end of 1Q24, and the guidance is more positive. We believe that as related products are iterated one after another, DDR5 will enter a period of rapid penetration in 2024, the combined storage cycle will end, and the company's SPD sales are expected to return to high growth. SPD prices may decline this year, but profitability is expected to remain at a high level, which will drive the company's overall performance back to high growth. In addition, sales of automotive-grade EEPROM products are expected to continue to grow this year. The company has completed the A0 grade product layout one after another. Some small-capacity NOR Flash have completed A1 level certification, and it is expected that downstream customers can quickly adopt it based on the EEPROM customer base. Some models of OIS voice coil motor driver chips have been tested and verified by smartphone manufacturers, and it is expected that they will be launched one after another this year.
Investment advice: Target price is 75.3 yuan, maintaining the “buy” rating. We expect the company's net profit to be 3.40/5.44/702 million yuan for 24/25/26, respectively. Considering the repair of business requirements other than SPD, the company will be given 35x 24PE (comparable to the expected average wind consistency of 43 x 24PE), and the target price is 75.3 yuan to maintain the “buy” rating.
Risk warning: The DDR5 penetration rate fell short of expectations, and prices continued to fall due to increased competition.