The company released its 2023 annual report and 2024 quarterly report, and the 24Q1 performance showed a recovery trend. At the same time, the company announced equity incentive targets to demonstrate confidence in growth. It is optimistic that the company will release long-term development potential as the industry sentiment rises and maintain its shareholding rating.
Key points to support ratings
The company's 24Q1 performance showed a remarkable recovery trend. The company achieved revenue of 5.761 billion yuan for the full year of 2023, a year-on-year decrease of 29.14%, realized net profit of 161 million yuan, a year-on-year decrease of 92.15%, and realized deducted non-net profit of 0.27 million yuan, a year-on-year decrease of 98.57%. In the first quarter of 2024, the company achieved revenue of 1,627 billion yuan, +21.32% YoY +19.10%, realized net profit of 205 million yuan, +36.45% YoY/+175.14% YoY, and realized deducted non-net profit of 184 million yuan, +41.26% YoY/+158.68% YoY. In terms of profitability, the company's gross profit margin in 2023 was 34.42%, a year-on-year decrease of 13.24 pcts, a year-on-year net interest rate of 2.80%, a year-on-year decrease of 22.45 pcts, a year-on-year decrease of 22.45 pcts, after deducting a non-net interest rate of 0.48%, and a year-on-year decrease of 23.01 pcts. In the first quarter of 2024, the company achieved a gross profit margin of 38.16%, -0.09pct/month-on-month +3.61pcts, a net profit margin of 12.58%, +1.40pcts year-on-year, after deducting a non-net interest rate of 11.29% and +1.59pcts year-on-year. The above changes are mainly due to: 1) After experiencing low demand and inventory removal in 2023, the consumer market was the first to see a recovery in demand in 2024, which led to an increase in sales of the company's related products; 2) the company continued to invest in R&D and product iteration, increasing the competitiveness of various product lines, and increasing sales volume and revenue for Flash, DRAM, and MCU.
Increase sales to seize market share, and continue to innovate and stabilize the leading position. By product: 1) Flash: The annual shipment volume of NorFlash products reached a record high of 2,533 billion units, an increase of 16.15% over the previous year; SPI NAND Flash achieved a significant year-on-year increase in product coverage in 2023; 2) Own DRAM: has multiple product models in both DDR3 and DDR4 product lines to meet the diverse needs of customers; DDR3L 2Gb and 4Gb products continue to increase, and now it has basically covered applications such as Netcom and TV Field and mainstream customer base; 3) MCU: Demand remains low in 2023, industry competition intensifies, and product prices continue to decline. Looking at the revenue level, 23H1 MCU's revenue declined sharply. The decline gradually narrowed in the second half of the year, and 23Q4 showed a steady month-on-month trend. The company continues to improve R&D capabilities around PMU products with an MCU layout, and actively explore consumer, industrial, and Netcom markets. MCU products have successfully mass-produced 46 product lines and more than 600 MCU products for the market to choose from.
The capital increase of Changxin Technology strengthened strategic collaboration, and equity incentives showed confidence in long-term development. The company announced on March 29 that it plans to participate in the new round of financing for Changxin Technology with its own capital of RMB 1.5 billion. After completing this capital increase, the company will hold about 1.88% of Changxin Technology's shares, which will help the company further deepen cooperation with Changxin.
In addition, the company released the “2024 Stock Options Incentive Plan” (draft) on April 20. The company set the 2023 operating income (5.761 billion yuan) as the base for this stock option incentive plan. The revenue growth rates for 2024-2027 were not less than 26.61%, 49.63%, 70.12%, and 104.84%, respectively. The corresponding absolute values of operating income were not less than 7.294 billion yuan, 8.620 billion yuan, 9.80 billion yuan, and 11.80 billion yuan, respectively. Based on this calculation, the company's revenue CAGR for 23-27 reached 19.63%, demonstrating confidence in steady growth on the revenue side.
valuations
Despite the pressure on the company's full-year performance in 2023, considering the recovery of the storage industry, the 24Q1 results showed an inflection point in profits. The company may be expected to be driven by multi-dimensional downstream growth, and the company's calm capital operation shows strength and determination. We expect the company to achieve revenue of 75.80/92.04/10.829 billion yuan in 2024/2025/2026, with net profit attributable to mother of 12.05/18.62/2,085 billion yuan, EPS of 1.81/2.79/3.13 yuan respectively, corresponding to 2024/2026 PE 42.0/27.2/24.3 times, respectively. Maintain an increase in holdings rating.
The main risks faced by ratings
The recovery of the storage market fell short of expectations, the recovery of MCUs fell short of expectations, and the development of new products fell short of expectations.