Matters:

1) For the full year of 2023, the company achieved revenue of 4,531 billion yuan (yoy -16.28%), net profit of 537 million yuan (yoy -31.93%), and net profit of 491 million yuan (yoy -34.23%) after deducting net income to mother.

2) In 24Q1, the company achieved operating income of 1,007 billion yuan (yoy -5.80%, qoq -9.35%), net profit to mother of 87 million yuan (yoy -23.90%, qoq -48.32%), and net profit after deduction of 82 million yuan (yoy -26.05%, qoq -43.58%).

Commentary:

In 2023, the consumer market achieved a healthy recovery in demand, and the sluggish performance of the industrial market was under pressure. In 2023, some consumer segments targeted by the company's computing chips showed a recovery trend, driving an increase in sales revenue for the computing chip product line (1,108 billion yuan, yoy +43.91%). In 2023, the sales revenue of the company's product line memory chips (2,912 billion yuan, yoy -28.19%) and analog and interconnect chip product lines (409 million yuan, yoy -14.58%) for the industry market both showed a year-on-year decline. Since most of the company's business comes from the automotive, industrial medical and other industry markets, in 2023, given the sluggish demand in the industry market, inventory pressure further affected customer procurement needs. The company's product sales revenue to the industry market declined year on year, thus causing the company's overall operating income and net profit to decline year on year. The company achieved operating income of 4.531 billion yuan, a year-on-year decrease of 16.28%, and achieved net profit of 537 million yuan, a year-on-year decrease of 31.93%. The valuation and appreciation of the company's assets such as inventory, fixed assets, and intangible assets resulting from the acquisition, depreciation and amortization affected the company's profit and loss during the reporting period of 43.17 million yuan.

The decline in the 24Q1 industry narrowed/analog and interconnected chips receded, and market demand is expected to gradually pick up. The company's product line computing chip sales revenue mainly for the consumer market increased year-on-year (240 million yuan, yoy +13.31%), but due to factors such as continued inventory pressure from customers in the industrial, medical and other fields and the lack of significant recovery in global industry market demand, product line memory chip sales revenue for the industry market declined year-on-year (641 million yuan, yoy -12.96%); at the same time, benefiting from the recovery in demand for office equipment, white goods, and some consumer markets, and the increase in demand from domestic automotive customers, the company achieved sales revenue for analog and connected chip products. Growth (106 million yuan, yoy +16.90%). In 2024, with the gradual elimination of product inventories in all parts of the industrial chain in the industry market and the gradual recovery of the global economy, it is expected that industry market demand will gradually pick up in 2024.

Implement the “computing+storage+simulation” strategy to enhance overall competitiveness. 1) In terms of computing chips, the company laid out new products according to changing market trends, completed mass production of the X2600 chip with low power consumption, high functional flexibility and expandability within 2023, and provided technical support to key customers; completed the R&D, launch and mass production of the T23, an upgraded product for the H.264 dual camera platform; planned and carried out research and development of new inclusive products for the dual camera market, and carried out research and development of the next generation C series products.

2) In terms of memory chips, mass production of the 8G LPDDR4 has begun. In response to the demand trend for DRAM products in niche markets, the company is developing next-generation DRAM technology and product development. The next-generation process can support the company to develop larger capacity DRAM products to meet the demand for higher capacity DRAM products brought about by the continuous development of automotive intelligence. 3) In terms of analog and connected products, automotive-grade LIN SBC and CAN SBC have been introduced to the market. GreenPhy products have completed mass production and assisted various customers in developing and adapting GreenPhy products, and some customers have introduced and implemented products.

Investment advice: In view of the pressure on industry performance and revising profit forecast data, we expect the company's operating income to be 53.5/63.3/7.46 billion in 2024/2025 (the original value was 5.90/7.09 billion in 2024/2025), and net profit of 6.69/8.49/10.89 billion yuan (2024/2025 original value was 895/1.25 billion). Based on the valuation level of comparable companies in the industry and the dominant position of the company, the target price of 69.5 yuan will be maintained “Recommended” rating.

Risk warning: downstream demand falls short of expectations; new product development falls short of expectations; production capacity support falls short of expectations