incident. On April 15, 2024, Demingli issued an announcement that the company's application to issue shares to specific targets was accepted by the Shenzhen Stock Exchange. It is proposed to raise no more than 1,246 billion yuan in capital in this offering, and the number of issues shall not exceed 30% of the total share capital of the company before the issuance.
The fixed increase was accepted, and funds were raised to invest in embedded storage and high-end SSDs. The total capital to be raised in this release is no more than 1,246 million yuan, of which 454 million yuan is to be invested in R&D and industrialization projects for PCIe SSD storage control chips and storage modules, and 614 million yuan is to be invested in R&D and industrialization projects for embedded memory control chips and storage modules. Related projects are expected to promote the optimization and upgrading of the company's products in the field of memory chips, improve the technical level and coverage of the company's products, and realize the transformation of the company's products from the mobile storage market to the embedded storage market and the high-end solid-state drive market. The distribution target of this offering is no more than 35 specific targets, including the controlling shareholders of the company. Li Hu, the controlling shareholder of the company, plans to subscribe for no less than 5% (including the number of shares) and no more than 30% (including the number of shares) of the number of shares issued to specific targets.
Actively expand the range and aim to achieve full coverage of flash memory main control chips. The company has covered SD2.0 to SD5.1 memory card control chips, and the self-developed SD6.0 has entered the film verification stage. In terms of solid-state drives, the company currently has 2.5-inch, M.2, and mSATA SSD series products. In addition to the SATA interface, M.2 covers both SATA3 and PCIe protocol interfaces. In addition, the company's self-developed SATA3.2 main control chip has also entered the chip verification stage. In terms of embedded storage, the company plans to develop eMMC, plans to adopt eMMC5.1 mainstream specifications, and plans a UFS product line for high-speed, high-capacity applications. The UFS 3.1 product line already has mass production capacity. With the continuous implementation of existing R&D projects and the gradual development of new projects such as PCIe SSDs, the company aims to achieve full coverage of mainstream all-flash memory control chips by 2025.
Storage prices continue to rise, and the product structure has been greatly upgraded. Thanks to effective inventory management and increased sales of new products, the company's first-quarter results were released. The company's early forecast Q1 revenue was 800-850 million yuan, an increase of 164.92% to 181.48% over the previous year; net profit to mother also increased sharply, reaching 186 million yuan to 226 million yuan. Looking back, we believe that demand for PCs and mobile phones is rising marginally, and AI applications will continue to drive storage expansion, while supply from original manufacturers is limited, and the rise is expected to continue in the future. Furthermore, the company accumulated inventory at the bottom of the industry in '23, and is now rapidly introducing new customers, achieving a major shift in business structure. The company's new product lines, such as high-end solid-state drives and embedded storage, focus on application fields such as consumer electronics, automotive electronics, servers and data centers. At present, the company has achieved initial results in verification and product introduction for some customers.
Investment advice: We expect Demingli's net profit to be 815/6.49/764 million yuan in 2024-2026, corresponding to 2024-2026 PE 15/19/16 times. Storage prices will continue to rise, and the company's performance flexibility can be expected. Moreover, in the long run, the company's self-developed main control chip model consolidates the advantages of the industrial chain, and the products have been upgraded from mobile storage to solid state drives and embedded storage, and the growth path is clear. Maintain a “Recommended” rating.
Risk warning: Downstream demand recovery falls short of expectations; risk of main control chip development and technology iteration falling short of expectations in fixed growth projects; risk of fluctuating storage wafer prices; risk of high concentration of raw material suppliers.