2024Q1 gross margin was clearly fixed month-on-month. We are optimistic about the long-term development of the company. Maintaining the “buy” rating company's 2023 annual report and 2024 quarterly report, achieving revenue of 2,690 billion yuan in 2023, -7.71% year on year; net profit to mother of 66 million yuan, -90.44% year on year; net profit after deducting non-return mother -106 million yuan, -118.96% year on year; gross sales margin of 19.76%, -21.15 pcts year on year. 2024Q1 achieved revenue of 679 million yuan, +7.41% YoY, +0.32% month-on-month; net profit to mother -63 million yuan, -283.38% YoY, +0.56 billion yuan; net profit excluding non-return to parent -49 million yuan, YoY +117 million yuan; gross sales margin 9.88%, YoY -19.79pcts, +8.82pcts month-on-month. The main reasons for the decline in the company's profit in 2023 are: (1) increased fixed cost pressure due to the expansion of production capacity in the company's fund-raising projects; (2) the company reduced the unit sales price of products in order to expand market share.

Considering that the silicon wafer industry is at the bottom, we lowered the company's 2024 and 2025 results and added 2026 results. The net profit for 2024-2026 is expected to be 2.12/5.00/796 million yuan (the previous value of 2024-2025 was 8.22/1,126 million yuan), and the PE corresponding to the current stock price is 64.9/27.5/17.3 times. We are optimistic about the long-term development space of the company's silicon wafer, RF and other businesses, and maintain a “buy” rating.

The semiconductor silicon wafer and power device chip business is under pressure in the short term. The RF business performed well. In 2023, the company achieved revenue of 1,792 billion yuan for semiconductor wafers, or -10.94% year-on-year, mainly due to a decline in demand in the consumer electronics market. In 2023, the company's semiconductor power device chip business achieved revenue of 1,029 billion yuan, -4.56% year-on-year, with sales volume of 1,715,800 units, or +8.87% over the same period. In the field of compound semiconductor RF chips, the company has made rapid progress, achieved outstanding performance, achieved a complete breakthrough in technology, and has a customer base of over 160. In 2023, we achieved revenue of 137 million yuan, +171% year over year, and sales volume of 17,900 tablets, +141.19% year over year.

The company continues to increase R&D and gradually invest in new products and production capacity. Performance is expected to pick up rapidly. The company continues to increase R&D investment. The R&D cost rate in 2023 reached 10.38%, +1.05 pcts compared to the previous year. In terms of products, the company has developed 11 new categories of 12-inch silicon wafers, of which 8 categories have already begun to be supplied in batches. In terms of production capacity, a project with an annual output of 1.8 million 12-inch silicon epitaxial wafers at the Quzhou base is under construction; the Haining base's annual production line project with an annual output of 360,000 6-inch microwave RF chips and devices has completed civil engineering. It is expected to build a production capacity of 60,000 pieces/year and put into operation in 2024Q4. With the gradual introduction of new products and new production capacity, the company's performance is expected to pick up rapidly.

Risk warning: downstream demand falls short of expectations; capacity release falls short of expectations; customer acquisition falls short of expectations.