Crystalline released its 2023 annual report. The recovery in terminal demand and the 55nm climbing drive Q4 performance improved month-on-month, and Jinghe released the 2023 annual report. It achieved full-year revenue of 7.244 billion yuan, a year-on-year decrease of 27.9%, and net profit to mother of 212 million yuan, a year-on-year decrease of 93.1%. The decline in performance was mainly due to weak demand for 1H23 smartphones, computers, etc., and the company's production capacity utilization rate was low. At the same time, ASP fell 18.8% year-on-year to 7,674 yuan/piece in 2023. However, driven by the recovery in terminal demand and the rapid increase in the company's new 55nm platform, the company's Q4 performance recovered. Revenue increased 8.8% month-on-month, gross margin increased 9.1 pct month-on-month to 28.3%, and net profit to mother increased 137.6% month-on-month. Driven by the company's accelerated expansion of production capacity and the new 55/40/28nm platform, we expect net profit to be 8.65/12.21/1,423 million yuan in 2024/2025/2026. 1.66 x 24-year PB (2.1 x discount compared to the industry average, mainly due to OEM price pressure and higher depreciation during the active expansion period of production capacity), maintaining the target price of 18.45 yuan and the purchase.

4Q23 review: Production capacity is close to full load driving Q4 revenue month-on-month growth, and gross margin improved markedly. We expect the company's Q4 production capacity to increase to 117 kwpm (+2k qoq, equivalent to 12 inches). Due to the recovery in domestic demand for small-sized smartphones in the second half of 2023, major customers continue to increase their demand for chips such as TDDI chips and CIS, and the Q4 capacity utilization rate is close to full load. At the same time, due to strong demand for the company's 55/90nm nodes, the company's product structure continues to be optimized to hedge against falling OEM prices, and we expect the company's Q4 ASP to be steady month-on-month. Thanks to this, the company's Q4 revenue increased 8.8% month-on-month to 2,227 billion yuan, and gross margin increased 9.1 pcts month-on-month to 28.3%. The company's expense ratio was stable during the Q4 period, resulting in net profit of 180 million yuan, an increase of 137.6% over the previous month.

24 Outlook: Major CIS customers drive 55nm growth, and 40/28nm mass production undertakes OLED demand growth outlook 2024. We believe that the company has two major growth points: 1) Major CIS customers continue to advance into smart phones and other fields, and the company actively cooperates with process platform development and production capacity support, which is expected to benefit. We expect the company's production capacity to grow to 167kwpm (+50k yoy) by the end of 2024, with a focus on 55nm bsi capacity expansion; 2) Demand in major panel applications such as smartphones, PCs, and LCD TVs is expected to resume growth. Omdia expects global DDIC demand to increase 6% year-on-year to 8.48 billion units in 24, of which AMOLED will grow 17%. The company's 40/28nm OLED platform is expected to be gradually mass-produced in 2H24 to catch up with strong OLED growth demand. Therefore, with active expansion of production capacity and recovery in demand, we expect the company's revenue to increase 38.9% year-on-year in 2012, and gross margin to maintain an improving trend.

Maintain target price of $18.45 and “buy” rating

Benefiting from the recovery in demand for panels and the expansion of production capacity on more advanced platforms, we expect net profit to be 8.65/12.21/1,423 million yuan in 2024/2025/2026, corresponding to EPS of 0.43/0.61/0.71 yuan. Based on 24E BPS of 11.10 yuan, 1.66x PB (2.1x discount compared to the industry average, mainly due to OEM price pressure and higher depreciation during the active expansion period of production capacity), the target price of 18.45 yuan and the purchase rating were maintained.

Risk warning: The semiconductor cycle is declining; competition for mature manufacturing processes is intensifying; the risk that the development of OLED and other process platforms falls short of expectations.