1Q24: Storage/MCU revenue both achieved month-on-month growth, and the company's profitability improved significantly. In '23, the company achieved revenue of 5.761 billion yuan (yoy: -29.14%) and net profit of 161 million yuan (yoy: -92.15%). 1Q24's revenue was 1,627 million yuan (yoy: +21.32%, qoq: +19.10%), and net profit to mother was 205 million yuan (yoy: +36.45%, turning a month-on-month loss into a profit), in line with our previous expectations (200 million yuan). The main reasons for the year-on-month increase in revenue were: 1) Demand for consumer applications represented by mobile phones and mobile phone peripherals picked up first; 2) the competitiveness of the company's various product lines increased, and the market share increased steadily. At present, the prices of niche DRAM and NAND markets have shown signs of price increases, and demand for products such as NOR and MCU has begun to recover one after another. The net profit for 24/25/26 is expected to be 10.05/13.84/1,747 billion yuan. Considering that the MCU and storage market still has a lot of room for growth in the long term, the target price is 98.1 yuan, maintaining a “buy” rating.
1Q24 review: DRAM prices bottomed out and rebounded, gross margin improved significantly month-on-month, and consumer market demand picked up further in 1Q24. The company's MCU, Flash, and DRAM business lines all achieved month-on-month growth in revenue and sales. From the price side, 1Q24 niche DRAM prices have risen moderately, SLC NAND prices have initially seen signs of increase, and NOR and MCU prices have basically stabilized. The gross margin of 1Q24 reached 38.2% (yoy: -0.09pct, qoq: +3.61pct) due to factors such as changes in product structure, inventory depreciation, and price increase of DRAM products. In addition, from the beginning of '24 to April 19, the company's transaction amount for OEM DRAM products from Hefei Changxin reached 200 million yuan. The estimated transaction amount for 2024 is 852 million yuan, an increase of 135% year-on-year over the actual amount of 362 million yuan generated in 23, and the DRAM business has entered a stage of rapid growth. By the end of 1Q, the company's inventory was 1,978 billion yuan, down 13 million yuan from the end of '23, and the pressure to depreciate inventory has basically been released.
2024 outlook: Market demand is picking up, focusing on the storage industry's sharp rise in volume and price, consumer demand has taken the lead, and inventory removal in the industrial market is nearing its end. We expect the company's revenue/profit to resume growth in 24 years: 1) DRAM: DDR3 2Gb/4Gb products will continue to be introduced to customers and improve yield, and are expected to achieve batch shipments and contribute revenue in 24 years. In addition, in '24, the company will launch a new DDR4 8Gb product and continue to advance LPDDR4 product development; 2) NAND:
Increase the share of 24nm process products, and the market share is expected to increase at an accelerated pace; 3) NOR and MCU:
Continuously improve product richness, and strengthen product layout and market promotion in automotive, industrial and other fields. In addition, the company announced the 2024 equity incentive plan, which will be awarded to a total of 45 people, mainly covering core management and technical personnel. According to the performance assessment target value, the company's 24-27 revenue should reach 72.94/86.20/98.00/11.800 billion yuan, 24-27 CAGR = 19.6%.
Investment proposal: The target price is 98.1 yuan, and the MCU and storage business are expected to resume growth in 2024, maintaining the “buy” rating. We expect net profit to be 10.05/13.84/1,747 billion yuan in 24/25/26. As the leading domestic storage+MCU, the company will give 65x24PE (comparable to 42x the company), and the target price is 98.1 yuan to maintain the “buy” rating.
Risk warning: New product development falls short of expectations, product prices continue to fall, and market competition intensifies.