Description of the event
On April 19, 2024, GigaYi Innovation announced the “2023 Annual Report” and the “First Quarter Report 2024”. In 2023, the company achieved operating income of 5.761 billion yuan, -29.14% year on year, gross profit margin of 34.42%, -13.24% year on year; net profit to mother of 161 million yuan, -92.15% year on year. 2024Q1 achieved revenue of 1,627 million yuan, +21.32% YoY, +19.10% month-on-month, and net profit to mother of 205 million yuan, +36.45% YoY.
Incident comments
Driven by demand in the first quarter, the off-season was not weak, and performance improved significantly. 2024Q1 achieved revenue of 1,627 billion yuan, +21.32% year-on-month, and +19.10% month-on-month. Consumer market demand continued to pick up in the first quarter, the off-season was not weak, and the company's revenue grew significantly month-on-month; gross margin was 38.16%, +3.61 pct month-on-month, and net profit to mother was 205 million yuan, +36.45% year over year.
Results were under pressure due to the impact of the 2023 industry cycle. In 2023, the company achieved operating income of 5.761 billion yuan, -29.14% year on year, gross profit margin of 34.42%, and -13.24% year on year; net profit to mother was 161 million yuan, -92.15% year over year; product prices dropped significantly due to industry competition in 2023, putting pressure on the company's overall revenue and profit side. By product line, memory chips, MCUs, and sensors achieved revenue of 40.77, 13.17, and 352 million yuan, respectively, or -15.51%, -53.46%, and -18.97%; gross margins were 32.99%, 43.10%, and 16.00%, respectively, -7.10pct, -21.76pct, and -0.36pct year-on-year. The leaders have shown that the business strategy of increasing sales and expanding market share in 2023 has achieved remarkable results. NOR Flash: Sales volume reached 2,533 billion units in 23 years, +16.15%; while maintaining a competitive advantage in the high-end consumer electronics market, the company continued to develop industrial, communications, automotive and other application fields to achieve full coverage of multiple application fields. Self-developed DRAM: The company already has multiple product models in the DDR3 and DDR4 product lines, and the market and customer expansion is remarkable. The company's DDR3L 2Gb and 4Gb products now basically cover application fields such as Netcom and TV, as well as mainstream customer groups. MCU: The company has successfully mass-produced 46 product lines and over 600 MCUs, launched a series of products and steadily advanced the market around automotive-grade MCUs, and launched the first high-performance MCU with an M7 core in China. The MCU gradually showed signs of month-on-month stabilization in the fourth quarter.
Changxin Storage-related transactions highlight the growth trend of self-developed DRAM. The company also announced the “2024 Related Transaction”. In 2024, Zhaoyi Innovation will purchase OEM DRAM products from Changxin Storage, with an estimated transaction amount of 120 million US dollars, or about 852 million yuan. Benefiting from the price rebound of niche storage at the end of the third quarter of 2023, the company's self-developed DRAM purchases began to increase; when the company's DDR3 product contract volume further increased in 2024, mass production of 8Gb DDR4 products and other new products continued to advance, and self-developed DRAM growth can be expected.
Based on research and development, leaders are prominent; the company can be expected to grow under a pro-cyclical interpretation. In 2023, the company's R&D expenses were 990 million yuan, and the R&D expenditure rate was 17.18%. The pro-cyclical interpretation is expected to continue in 2024 as demand recovers. The company NOR Flash continues to expand its business scale and market share, SLC NAND Flash further increases the share of 24nm process nodes, DRAM continues to launch DDR4 8Gb products and develop LPDDR4. MCU is positioned as a “department store” and continues to break through the vehicle and home appliance markets. I am optimistic about the company's deterministic growth under a continuous pro-cyclical interpretation. Net profit due to mother for 2024-2026 is expected to be 1,004 billion yuan, 16.24 billion yuan, and 2,001 billion yuan, respectively, maintaining the “buy” rating.
Risk warning
1. Downstream demand recovery falls short of the expected risk;
2. The risk of developing new products falling short of expectations due to brain drain.