Core views:
Demand in the industry weakened in '23, and the company's shipments bucked the trend. Zhaoyi Innovation released its 2023 annual report. The company achieved revenue of 5.761 billion yuan, YoY -29.14%, realized net profit of 161 million yuan, YoY -92.15%, and realized net profit deducted from non-mother of 27 million yuan, and YoY -98.57%. Demand in the terminal market was weak in '23, competition was fierce, and product prices dropped significantly. The unit prices of all of the company's product lines showed a downward trend in the first three quarters. By the fourth quarter, prices for several product lines were close to or reached the bottom. The decline in product prices led to a significant decline in the company's gross profit. The comprehensive gross margin fell from 47.66% to 34.42% in 22-23. The company insisted on developing the market with market share as the center. Product shipments reached 3.122 billion units, YoY +12.98%, further increasing its market share.
The 24Q1 performance was outstanding, and the memory chip performance was outstanding. In 24Q1, the company achieved revenue of 1,627 billion yuan, YoY +21.32%, QoQ +19.11%, gross margin of about 38.16%, an increase of 3.6 pcts over the previous month, and realized net profit of 205 million yuan and YoY +36.45%. Net profit without return to mother was 184 million yuan, YoY +41.26%. The company's outstanding performance in 24Q1 was mainly due to a recovery in consumer market demand and an increase in memory chip shipments, which led to an increase in operating income and net profit to mother.
The amount of transactions related to memory chips has increased dramatically, and the release of an equity incentive plan shows confidence. According to the “Notice Concerning the Estimated Amount of Daily Related Transactions in 2024”, the company expects the transaction amount of DRAM products purchased and manufactured on an OEM basis from Changxin Storage in 24 years to be 120 million US dollars, about 852 million yuan, YoY +135.36%, a significant increase over the previous year. The company issued an equity incentive plan to issue 6.7814 million shares of stock options, accounting for about 1.02% of the company's total share capital. The exercise price was 59.18 yuan/share. The exercise conditions were based on 23 year revenue. Revenue growth in 24-27 was 26.61%, 49.63%, 70.12%, and 104.84%, respectively, demonstrating confidence in the company's future development.
Profit forecasting and investment advice. The company is expected to achieve revenue of 7.357 billion yuan and EPS of 1.87 yuan/share in 2024. Considering comparable company valuations, the company will be given 55 times PE in 24 years, corresponding to a reasonable value of 102.82 yuan/share, giving it a “buy” rating.
Risk warning. The progress of new products fell short of expectations, downstream demand fell short of expectations, and market competition intensified.