Incidents:
On April 20, the company released its 2023 annual report and 2024 quarterly report. In 2023, it achieved operating income of 5.761 billion yuan, -29.14% year on year, net profit to mother of 161 million, -92.15% year-on-year, and a gross profit margin of 34.42% for the year. In the first quarter of 2024, we achieved operating income of 1,627 million yuan, +21.32% year-on-year, +19.1% month-on-month, achieving a net profit margin of 205 million yuan and a gross profit margin of 38.16%.
Revenue was clearly affected by price in '23, and sales of some product lines reached record highs:
In the NOR Flash field, shipments reached a record high in '23, reaching 2,533 billion units, an increase of 16.15%; continuing to maintain its advantage in the middle and high-end consumer markets, while actively expanding application fields in the industrial, Netcom, automotive and other markets, so that NOR FLASH continues to grow along with the development of the terminal market. The SLC NAND Flash sector has achieved full product coverage in the fields of consumer electronics, industry, automotive electronics, etc., and the shipment volume increased significantly year-on-year in 2023. In the self-developed DRAM field, 2023H2 DDR3 products are mass-produced and marketed, with multiple product models in the DDR3 and DDR4 product lines. The total number of customers sold has been steadily increasing. Among them, shipments of DDR3L 2Gb and 4Gb products have continued to increase, and now they have basically covered application fields such as Netcom and TV, as well as mainstream customer groups. In the MCU sector, product prices continued to decline in 23 years due to increased competition in the industry. The company continues to improve R&D capabilities around PMU products with an MCU layout, and actively explore consumer, industrial, and Netcom markets. At the same time, in the automotive market, we are increasing our R&D and market development efforts for automotive-grade flash memory and automotive-grade MCU.
The first quarter results got off to a good start, and domestic memory chips are expected to enter an upward cycle:
The company achieved rapid year-on-year and quarter-on-quarter revenue growth in the first quarter, and gross margin increased 3.62 percentage points month-on-month in 24Q1. We believe that, against the backdrop of a 23-year decline in the global semiconductor cycle, weak demand, and increased domestic competition, NOR, SLC NAND, and self-developed niche DRAM can still achieve sales growth, which highlights the company's product competitiveness; second, the company continues to maintain high R&D investment and continues to launch new products, which is expected to continue to strengthen its leading position in the domestic storage and MCU fields; third, after two years of removing inventory and production capacity, global semiconductors are expected to enter an upward cycle, and memory chip prices are expected to continue to benefit. Flash, SLC NAND, and self-developed DRAM products are all expected to see a sharp rise in volume and price.
Investment advice:
We expect the company's revenue from 2024 to 2026 to be 7.489 billion yuan, 9.736 billion yuan, and 11.683 billion yuan, respectively, and net profit to mother will be 1,143 billion yuan, 1,872 billion yuan, and 2,605 billion yuan, respectively. The corresponding PE is 43 times, 26 times, and 19 times, respectively. Using the PE valuation method, considering that the company's product competitiveness and storage product line are expected to see a sharp rise in volume and price, profitability is expected to continue to increase steadily in 24 and 25, giving it 60 times PE in 2024, corresponding to 36 times PE in 2025, corresponding to a target price of 102.8 yuan, and maintaining a “buy-A” investment rating.
Risk warning: Market demand falls short of expectations; new product launches fall short of expectations.