Incident: Recently, the company released its 2023 annual report and report for the first quarter of 2024. In 2023, the company achieved revenue of 10.125 billion yuan, +21.55%; net profit to mother - 828 million yuan, -1237.15% year on year; net profit after deducted from mother - 882 million yuan, -2430.87% year on year; in the first quarter of 2024, the company achieved revenue of 4.453 billion yuan, +200.54%, month-on-month + 598.15%; net profit after deducting non-return to mother was 363 million yuan, up +228.44% year over year, and +2324.25% month on month.
Key points of investment:
24Q1 results continued the rapid growth trend, and profitability improved significantly. Benefiting from the recovery in demand in core memory markets such as smartphones, PCs, and servers, the original storage wafer factory contracted on the supply side, memory prices entered an upward channel, and the company's 24Q1 revenue and net profit to mother continued the rapid growth trend of 23Q4. Due to factors such as rising memory prices and optimization of the company's product line and customer structure, the company achieved gross margin of 24.39% in 24Q1, up 23.12% year on year, and 5.88% month on month; the company's 24Q1 net margin was 8.60%, turning a loss into a profit year on year, up 7.31% month on month. In 2023, the company's R&D expenses reached 594 million yuan, an increase of 66.74% over the previous year. The share payment amount for R&D expenses was 111 million yuan. Under market pressure, the company still firmly invested in R&D and implemented employee equity incentive plans to consolidate the company's core competitiveness and improve the company's long-term incentive mechanism.
AI is driving a significant increase in storage demand, and the memory market is expected to recover strongly in 2024.
With the explosive development of AI technology, AI applications are gradually expanding from servers to terminals such as AI phones and AI PCs. AI servers have significantly increased the requirements for storage performance and capacity. HBM and DDR5 memory sticks will benefit from the rapid growth of AI servers, and replacing HDDs will become an important driving force for SSD demand; AI PCs will greatly increase the demand for DRAM capacity, and 16GB DRAM will become the basic configuration for the next generation of AI phones, and a significant increase in the penetration rate of AI phones and AI PCs is expected to drive With the new wave of rotating machines, AI may drive a significant increase in storage demand. According to CFM flash memory market data, the global semiconductor storage market is expected to be US$86.8 billion in 2023, down 38% year on year; upstream storage wafer manufacturers will maintain production cuts, and downstream demand will gradually improve the general trend of superimposed AI. According to WSTS forecasts, the global memory market is expected to grow 45% year on year to reach US$129.8 billion in 2024, and the memory market is expected to recover strongly in 2024.
The company has outstanding competitive advantages, and there is broad scope for domestic alternatives in the future. The company has four major product lines of embedded storage, solid state drives, mobile storage and memory sticks, and has formed a product matrix for the FORESEE brand for the industrial market and the Lexar (Lexar) brand for the consumer market. According to CFM flash memory market data, the company ranked sixth in the world in terms of market share of eMMC & UFS in 2022; according to TrendForce data, Lexar ranked third in the world in terms of channel SSD market shipments in 2022; according to Omida, Lexar ranked third in the world in the field of memory cards and flash drives in 2021. The company has mastered comprehensive wafer analysis technology, successfully mass-produced and shipped two self-developed main control chips, and maintained the competitive advantage of self-developed firmware algorithms for high-end memory products; it has established SLC NAND Flash small-capacity memory chip design capabilities, and the first 32 Gbit 2D MLC NAND Flash has completed flow film verification; based on the advanced packaging testing production capacity of Yuancheng Suzhou and Zilia, it has formed an integrated manufacturing pattern for memory chip packaging and testing that takes into account global production capacity and domestic production capacity. Currently, the global storage module market is mainly occupied by leading overseas IDM manufacturers. The company's 2023 revenue still accounts for less than 2% of the global memory market, and there is plenty of room for domestic replacement in the future.
The company's storage products expand the enterprise-level and automotive-level markets and are expected to become a new driving force for future growth. The company's UFS and eMMC embedded memories are widely used in consumer electronics fields such as smartphones. In 2023, UFS2.1 products have completed product verification on multiple automotive clients, and mass production and shipment is expected to begin in the first half of 2024. The company continues to expand the enterprise and high-end consumer SSD markets, and released a number of enterprise-grade SSD products in 2023. The two major product series, NVMe SSD and SATA SSD, have successfully completed compatibility adaptations with multiple domestic CPU platform servers from Kunpeng, Haiguang, Dragon Core, Feiteng, MegaCore, and Shenwei. The company's enterprise-grade SSDs have been mass-produced and shipped, and can be widely used in communication operators, finance, and the Internet. The company's memory card product line covers DDR4 and DDR5 series specifications, and has launched DDR4 RDIMM and DDR5 RDIMM enterprise memory stick product lines. The RDIMM product capacity covers 32GB, 64GB and 96GB, suitable for various enterprise-level application scenarios. AI will bring important opportunities to the enterprise-level storage market. The degree of vehicle intelligence will continue to increase, driving the rapid growth of the automotive-grade storage market, and the enterprise-level and automotive-grade markets are expected to become a new driving force for the company's future growth.
Profit forecasting and investment advice. The company is a leading domestic storage module enterprise. It continues to iteratively upgrade products, optimize products and customer structures, and continuously improve overall competitiveness, or will fully benefit from memory cycle recovery and localization trends, and expanding the enterprise and vehicle market is expected to become a new driving force for the company's future growth. We expect the company's 24-26 revenue to be 170.37/208.61/23.256 billion yuan, and net profit to mother for 24-26 is 15.75/17.70/1500 billion yuan, and the corresponding EPS is 3.81/4.29/3.63 Yuan, corresponding PE is 25.79/22.95/27.08 times. Considering the company's position in the global memory market, the stage of the memory cycle, and growth over the next few years, coverage was given a “buy” rating for the first time.
Risk warning: Industry competition increases risk; risk that downstream demand recovery falls short of expectations; risk of memory price fluctuations; risk of new product development falling short of expectations.