Revenue increased month-on-month in the first quarter, and gross margin was under pressure in the short term. In 2023, the company achieved revenue of 2,690 billion yuan (YoY -7.71%), net profit attributable to mother of 66 million yuan (YoY -90.44%), and net profit of non-return to mother of 106 million yuan (YoY -118.96%); due to increased depreciation due to pressure on product prices and increased depreciation due to increased production expansion, the company's gross margin fell 21pct to 19.76%. 1Q24 had revenue of 679 million yuan (YoY +7.4%, QoQ +0.3%), net profit to mother of 63 million yuan (YoY -283%, QoQ +47%), net profit of 56 million yuan (YoY +139%, QoQ +134%), gross margin of 9.88% (YoY -19.8pct, QoQ +8.8pct).

Silicon wafer sales increased year-on-year in the first quarter, and production capacity at the Jiaxing base is expected to reach 150,000 wafers/month by the end of the year. In 2023, the company achieved revenue of 1,501 billion yuan (YoY -14.03%), accounting for 56%, and a gross profit margin of 7.72% (YoY -26pct). 1Q24 sold 3.11,1800 equivalent 6-inch silicon wafers (YoY +45.47%, QoQ +14.44%). The company has a monthly production capacity of 600,000 6-inch polishing sheets, a monthly production capacity of 270,000 8-inch epitaxial sheets, 700,000 8-inch epitaxial sheets, 200,000 12-inch epitaxial sheets, and a monthly production capacity of 100,000 12-inch epitaxial sheets; it is expected that in September 2024, the Quzhou base will complete the transfer of additional production capacity of 250,000 8-inch wafers/month, and the monthly production capacity of 12-inch polishing sheets at the Jiaxing base will reach 150,000 sheets by the end of 2024.

In 2023, semiconductor power device revenue decreased 4.56% year over year, and sales increased 4.5% year over year in the first quarter.

In 2023, the company's semiconductor power devices achieved revenue of 1,029 billion yuan (YoY -4.56%), accounting for 38%, and a gross profit margin of 41.23% (YoY -15pct). 1Q24 sold 418,700 tablets, up 4.50% year on year and down 2.30% month on month. The company's power device chip production capacity is 235,000 pieces/month. The product line includes 6-inch SBD, FRD, MOSFET, TVS, and IGBT. In 2023, the company focused on the two major product categories of photovoltaics and vehicle regulations, giving priority to expanding the sales scale and proportion of groove products, steadily increasing the production and sales share of FRD products, speeding up the development of IGBT and other products, accounting for about 37% of global photovoltaic chip sales.

In 2023, RF chip revenue increased 171% year over year, and gross margin improved. In 2023, the company's compound semiconductor RF chips achieved revenue of 13,700 yuan (YoY +171%), accounting for 5%, and a gross profit margin of -13.25% (YoY+37pct). 1Q24 sold 0.9 million tablets, up 387.72% year on year and 2% month on month. Currently, the company has an annual production capacity of 90,000 compound RF chips. The product line includes 6-inch microwave RF chips, VCSEL chips, etc. It is estimated that in 2024Q4, the Haining base will have a production capacity of 60,000 pieces/year and put into commercial operation.

Investment advice: Short-term profits are under pressure to maintain the “gain” rating

Due to price pressure and depreciation pressure brought about by production expansion, we expect the company's net profit to be 1.50/2.62 billion 376 million yuan in 2024-2026. The PE corresponding to the stock price on April 24, 2024 is 93/53/37x, respectively. Short-term profits are under pressure, and the “increase in holdings” rating is maintained.

Risk warning: New product development falls short of expectations; customer verification falls short of expectations; demand falls short of expectations.