Incident: On April 19, 2024, GigaYi Innovation released its 2023 annual report and the first quarter report of 2024. In 2023, the company achieved revenue of 5.761 billion yuan, yoy -29.14%, net profit of 161 million yuan and yoy -92.15%. In the first quarter of 2024, the company achieved revenue of 1,627 billion yuan, yoy +21.32%, qoq +19.10%, net profit to mother of 205 million yuan, yoy +36.45%, reversing losses from month to month.
Q1 Performance exceeded expectations, and business performance is improving. The company's Q1 achieved revenue of 1,627 billion yuan, yoy +21.32%, qoq +19.10%; net profit to mother of 205 million yuan, yoy +36.45%, which exceeded market expectations. We believe that it mainly benefited from 1) the recovery in terminal boom, demand growth for consumer electronics products represented by mobile phones is obvious, industry inventories have reached an inflection point, and prices have begun to recover moderately; 2) The company continues to develop and iterate products, and the product line is growing steadily. Thanks to the recovery of the industry and the optimization of the company's product structure, the Q1 company's gross margin increased by 3.61 pct month-on-month to 38.16%.
Major overseas manufacturers raised DDR3 prices, and NOR Flash prices are also expected to rise. In terms of the DRAM business, DDR3 is tight due to reduced production from the original manufacturer and the shift in production capacity of original storage companies such as Samsung to HBM and DDR5, while demand for AI and Netcom rebounded. Winbond plans to raise DDR3 prices by 10-20% in Q2. Also, it is worth noting that the company announced a procurement of 362 million yuan from Changxin related transactions in 2023. It is expected to purchase 852 million yuan in 2024, doubling the purchase amount. On the NOR Flash side, benefiting from the recovery in downstream demand, Huabang and Wanghong's operating rates continued to rise, and foundry prosperity and operating rates recovered simultaneously. Under limited supply growth, NOR Flash prices are expected to rise. Furthermore, new industry trends such as AI PCs are expected to drive overall shipments, thereby indirectly driving demand for NOR Flash.
MCU prices have rebounded steadily, expanding the automotive front-end market. Product prices continued to fall due to increased competition in the MCU industry in 2023. Currently, prices are at the bottom of the industry, and some products have rebounded slightly. At present, the company has successfully mass-produced 46 product lines and more than 600 MCU products, covering all major application markets such as general purpose, low cost, high performance, low power consumption, and wireless connectivity. Furthermore, the company is continuing to explore the automotive market, comprehensively shifting from rear-mounted applications to automotive-grade front-end applications, and cooperating with leading domestic tier1 platforms to develop MCU products.
Equity incentives have positive goals, demonstrating confidence in development. The company launched the 2024 equity incentive plan to grant a total of 45 people, including directors, key management personnel and key personnel, 6.7814 million share options. It is worth noting that the revenue assessment target in the company's equity incentives is positive, based on 2023 revenue of 5.761 billion yuan. The assessment target is that the 2024-2027 revenue growth rate should not be less than 26.61%/49.63%/70.12%/104.84%, respectively, corresponding to the year-on-year growth rate of 26.61%/18.18%/13.69%/20.41% in 2024-2027. According to the incentive plan, if the company grants equity at the end of May 2024, it is estimated that the total amortization cost of equity incentives will be RMB 126.916,800, and RMB 3302.19/4431.27/2878.11/1629.38/450.73 million yuan in 2024-2028, respectively.
Investment advice: We expect the company's net profit to be 10.76/15.40/1.905 billion yuan in 2024/25/26, respectively, and 47/33/27 times the corresponding current PE price, respectively. Niche storage prices are rising, and the company's performance is expected to gradually pick up, and the company continues to launch new products such as Nor Flash, SLC NAND, and DRAM, and the product structure continues to be optimized to maintain a “recommended” rating.
Risk warning: terminal demand recovery falls short of expectations, new product introduction progress falls short of expectations, macroeconomic fluctuations