Key points of investment:
Incident: On April 17, 2024, the company released its 2023 annual report. In 2023, the company achieved operating income of 7.565 billion yuan, an increase of 6.26% over the previous year, and realized net profit of 2,530 billion yuan, a year-on-year decrease of 3.84%.
Incident analysis:
Operations remained generally stable, and the heavy pressure on the industry showed great resilience. In 2023, the company achieved operating income of 7.565 billion yuan, an increase of 6.26% over the same period last year; net profit attributable to shareholders of listed companies was 2,530 billion yuan, down 3.84% from the same period last year. Net cash flow from operating activities was $1,772 million, up 2.63% from the same period last year. In '23, the company further focused on its core business, optimized resource allocation, initiated equity adjustments and liquidation of the three business companies of Ziguang Qingteng, Ziguang Xinneng, and Ziguang Anxin; completed the equity transfer of Tangshan Jingyuan Electronics, further clarified the responsible position of the management headquarters, and cleaned up its operating businesses such as Super SIM cards. In 23, due to the military's mid-term adjustment of the 14th Five-Year Plan period, procurement demand and orders lagged behind, and the performance of most companies in the industry declined. In 2023, the company's special integrated circuit business achieved revenue of 4.487 billion yuan, a year-on-year decrease of only 5.02%. Furthermore, in terms of price, when prices of some military products generally declined, the company's special integrated circuit business achieved a gross profit margin of 73.22%, a decrease of only 0.7 percentage points over the same period last year. In the face of declining volume and prices throughout the industry, the company's special business has maintained relatively steady development and good gross profit margins.
Continuing to focus on scientific and technological innovation, the share of R&D investment has further increased. The company invested 1,633 billion yuan in R&D throughout the year, an increase of 30.68% over the same period last year, accounting for 21.58% of revenue. In the special integrated circuit business, the company has launched a new industrial-grade product line and a radiation-resistant product line; the development and marketing of new products such as special memories, special special processors, special FPGAs, and system-level chips are progressing smoothly; analog products have completed the development of a large number of new products, forming a systematic layout. Furthermore, the company overcame low ripple switching power supply control technology and achieved breakthroughs in key technologies for special Ethernet switching circuit design. In terms of the smart safety chip business, the company established an automotive-grade product development and management process system that conforms to the highest level of automotive functional safety “ASIL D”; released the world's first eSIM solution customized for smart POS.
Integrated circuits remain industry-leading, and the range of users continues to expand. In 2023, the company's special integrated circuit business achieved revenue of 4.487 billion yuan, a year-on-year decrease of 5.02%. The new generation of higher performance products has been recognized by some core customers and has entered the comprehensive promotion stage. The newly developed special Nand Flash has been introduced to the market, the new special memory has been developed, system-level chips represented by special SoPC platform products have been widely recognized by users, and the fourth-generation products have completed early program promotion and can be used in various fields. The newly expanded RF-SOC products have been validated by core customers to meet application requirements in specific fields. Special processor series products such as general-purpose MCUs, image AI smart chips, and digital signal processor DSPs have been developed and selected by users. The development of products such as high-end MCUs and video processing chips is progressing smoothly.
With a breakthrough in the smart security chip market, automotive chips are expected to create a second curve. The company's smart security chip business continues to make new breakthroughs in product technology and market expansion. In 2023, the company's smart security chip business achieved revenue of 2,842 billion yuan, an increase of 36.67% over the previous year. In the telecommunications market, the company and partners have jointly launched an eSIM one-stop solution, which supports wafer-level personalized data writing, is compatible with remote eSIM configurations and 5G connections, and has obtained GSMA's SAS-UP qualification certificate. In terms of automotive electronics, the company's automotive chip security product layout covers many fields of vehicle networking. Among them, the application of vehicle regulation SE in the fields of digital keys, T-BOX, etc. has been recognized by the market, and has been introduced to dozens of OEMs and Tier 1 to achieve mass production and loading. Joined WPC as an MCSP service provider, provided trusted authentication for in-vehicle wireless charging equipment, and successfully completed the first authoritative functional safety certification based on R52+ core MCU in China.
Investment advice: The company is leading the industry in the field of specialty FPGAs, and a variety of new products have achieved customer breakthroughs. We believe that in the future, the company will maintain a high level of growth over a long period of time. It is predicted that the company's 2024-2026 revenue will be 101.45/134.93/17.541 billion yuan, an increase of 34.1%/33%/30% year on year, and the company's net profit to mother will be 32.32/43.16/ 5.249 billion yuan respectively, up 27.7%/33.5%/21.6% year on year, corresponding to EPS 3.80/5.08/6.18 yuan, PE 16.4/12.3/10.1, maintaining the “buy” rating.
Risk warning: New product development falls short of expectations; market competition continues to intensify; accounts receivable are not collected in a timely manner.