2023 results fall short of our expectations
The company announced its 2023 results: revenue of 703 million yuan, a year-on-year decrease of 28.25%; net profit to mother was 100 million yuan, a year-on-year decrease of 71.63%. Net profit after deducting non-return to mother was 88 million yuan, down 77.52% year on year, and 4Q23 revenue was 202 million yuan, down 23.22% year on year and up 9.19% month on month; lower than our expectations.
The main reason for the decline in the company's annual revenue is that major global memory module manufacturers reduced inventory pressure by suspending procurement and reducing production capacity, which led to a decline in sales of the company's SPD products. However, according to the company's announcement, the company's SPD product sales and revenue have increased significantly month-on-month since December, and we expect the 24-year results to recover to a certain extent.
Development trends
Downstream vendor inventories have improved, and DDR5 penetration has increased again. DDR5 memory modules have the advantages of faster speed, lower power consumption, and higher bandwidth than DDR4 memory modules. The SPD products of DDR5 memory modules developed by the company in cooperation with Lanqi Technology have downstream customers covering major memory module manufacturers in the industry. According to the company announcement, DDR5 memory module penetration is expected to exceed 50% by mid-2024. The company's performance in 2023 was affected by pressure from downstream module manufacturers to remove inventory. Looking forward to the future, SPD products are expected to continue the recovery trend since December. Combined with downstream manufacturers nearing the end of the inventory phase, we believe that the company's SPD products are expected to usher in rapid growth. We believe that although ASP has declined as shipments increase, SPD products are expected to maintain a high gross profit margin with better technical advantages and competitive patterns.
Efforts continue to be made in the field of vehicle regulation, and the growth rate of voice coil motor chips is impressive. The company already has a full range of automotive-grade EEPROM products of grade A1 and below. The products have been widely used in dozens of sub-modules of four major systems, including smart cockpits, three-electric systems, visual perception, chassis transmission and micromotors. End customers include many mainstream domestic and foreign automobile manufacturers. At the same time, the company's NOR Flash products with a capacity of 512 Kb-8 Mb have completed A1 level certification. In 2023, the company's voice coil motor driver chip product revenue increased 52.4% year over year. According to the company's announcement, while strengthening the promotion of open loop voice coil motor driver chips and EEPROM two-in-one products, the company successfully delivered a new generation of 1.2V/1.8V logic level adaptive mid-loop voice coil motor driver chips in batches. Closed loop voice coil motor driver chip products have also been applied in small batches by customers.
Profit forecasting and valuation
Due to the low DDR5 penetration base at the beginning of the year, we lowered our 24-year revenue by 19.2% to 1,060 million yuan, lowered net profit by 22.4% to 376 million yuan, and introduced 2025 revenue/net profit of 1,366.06 billion yuan for the first time. The current stock price corresponds to 22.6/16.8 times the 2024/25 price-earnings ratio. Due to the large space for DDR5 penetration and the weak trend, we have maintained an industry rating and target price of 80 yuan, corresponding to 33.6/25.0 times the 2024/25 price-earnings ratio, which has 49.0% upside compared to the current stock price.
risks
The DDR5 penetration rate fell short of expectations, market competition intensified, and product promotion fell short of expectations.