Incidents:

On April 15, Pran Co., Ltd. released its 2023 annual report. In 2023, it achieved revenue of 1,127 billion yuan, an increase of 21.87%; net profit to mother - 0.48 million yuan, a year-on-year decrease of 158.06%; net profit after deducting non-return to mother - 65 million yuan, a year-on-year decrease of 296.18%.

Looking at a single quarter, 2023Q4 achieved revenue of 360 million yuan, a year-on-year increase of 123.40%, and a month-on-month increase of 20.54%; net profit to mother of 0.53 million yuan (-55 million yuan for the same period in 2022), turning a month-on-month loss into a profit; net profit after deducting non-return to mother of 0.46 million yuan (-68 million yuan for the same period in 2022).

Investment highlights:

Revenue and shipments both increased in 2023, and the decline in inventory is expected to be carried out lightly in 2024.

The main reason for the increase in the company's revenue and shipment volume in 2023 is that, on the one hand, downstream demand for consumer electronics etc. has gradually recovered since the second half of 2023; on the other hand, when the industry boom has not fully recovered and market competition is fierce, the company actively promoted the layout of new products. At the same time, some product lines adopted a pricing strategy of active price reduction in combination with market supply and demand, and the company's strategy of actively expanding market share achieved immediate results.

In terms of inventory, as of the end of 2023, the company's inventory book value was 363 million yuan, a significant decrease from 670 million yuan at the end of 2022. In a situation where the industry has not fully recovered and competition has intensified, the company depreciated inventory based on prudential principles. As a result, asset impairment losses occurred in 2023 of 106 million yuan, an increase of 38 million yuan over the previous year.

The advantages of the memory chip process are obvious, and automotive-grade products are progressing smoothly. In 2023, the company's memory series chips achieved operating revenue of 1,012 billion yuan, a year-on-year increase of 16.04%; gross profit margin of 23.99%, a year-on-year decrease of 5.66 pcts; and shipments of 5,089 billion units, an increase of 45.06% year-on-year. Among them, shipments of NOR Flash products have broken through a record high, with cumulative shipments exceeding 3 billion units. In 2023, the total revenue of the company's second-generation 40nm process products based on the SONOS process platform has surpassed that of first-generation 55nm products, and the 40nm process node has become the main process node for the company's NOR Flash products. The company takes full advantage of the cost performance, volume, power consumption, read and write speed of SONOS process products, and occupies a large market share in the small to medium capacity market within 512 Kbit-128 Mbit. At the same time, the company's ETOX process for medium- to high-capacity products is progressing smoothly, and 512 Mbit capacity products are mass-produced and shipped, and it is expected that the market share of the high-capacity NorFlash market will continue to increase in the future. Furthermore, the company's NOR Flash automotive products are progressing smoothly, and in 2024, the company will gradually promote the full range of NOR Flash vehicle certification.

In terms of EEPROM products, the company's shipments also broke through a record high in 2023, with cumulative shipments exceeding 1.4 billion units. In 2023, the proportion of industrial control applications in the company's EEPROM increased significantly, helping to stabilize gross margins. At the same time, automotive products have been delivered in batches to domestic and foreign customers in applications such as body cameras, in-vehicle central control, and entertainment systems, and the share of automotive electronics in revenue has increased.

The revenue of “Storage+” series chips grew rapidly, and the company's second growth curve broke through at an accelerated pace. In 2023, the company's “Storage+” series chips achieved revenue of 115 million yuan, a year-on-year increase of 117.70%; gross profit margin of 26.88%, a year-on-year decrease of 6.31 pcts; and shipments of 277 million units, an increase of 193.33% over the previous year. Among them, in terms of MCU, the company has successively launched 12 series of more than 200 MCU chip products with ARM M0+ and ARM M4 cores, mainly used in smart homes, small appliances, BMS, e-cigarettes, etc., with the advantages of leading technology and ultra-low power consumption and highly integrated self-designed memories. In terms of VCM Drivers, relying on the product itself and the ability to collaborate with customer resources, the company has achieved mass shipment of independent open-loop and storage 2-in-1 products. It is mainly used in camera modules (CCM), forming a good synergy effect with the company's EEPROM products, enhancing the company's competitive advantage and market share in the field of camera modules.

Profit forecasts and investment ratings In the field of non-volatile memory chips, the company's technology, products, and customer advantages are all in a leading position in the country. At the same time, the company relies on technical advantages and platform resources in the storage field to actively develop microcontrollers and analog chip products around the “Storage+” development strategy to achieve expansion into higher value-added fields and more diversified markets. At present, the global macroeconomy has not recovered, and the industry competition pattern is fierce. Therefore, we have slightly adjusted our revenue forecast. We expect the company's revenue for 2024-2026 to be 15.66/19.60/2.62 billion yuan, respectively; net profit to mother will be 1.20/2.50/330 million yuan, respectively.

The 2024-2026 PS was 4.01/3.21/2.78 times, respectively, maintaining a “buy” rating.

Risk warning: 1) Downstream consumer electronics demand recovery falls short of expectations; 2) market competition intensifies; 3) automotive product introduction progress falls short of expectations; 4) new product development progress falls short of expectations; 5) domestic substitution falls short of expectations.