Matters:
On April 29, 2024, the company released its report for the first quarter of 2024:
The company achieved operating income of 893 million yuan in 2024Q1, +10.30%/+11.84%; gross profit margin of 56.65%, year-over-month -10.12pct/month-on-month -10.12pct/+6.98pct; net profit to mother of 161 million yuan, -14.35%/+132.50% year-on-month; net profit without deduction of 155 million yuan, -13.93% year-on-month, reverse loss from month to month.
Commentary:
The high-reliability business is steady+the MCU business is growing at a high rate, and the company's revenue resumed positive growth in the first quarter. The company's 2024Q1 security and identification chip/non-volatile memory/smart meter chip/FPGA and other product/test service revenue (after merger and offset) achieved revenue of 2.01/2.92/0.92/2.81/0.26 billion yuan respectively, -3.37%/+5.42%/+95.74%/+23.25%/-48.00%. The company's high-reliability business maintained steady growth under the advantage of pioneering technology, and the recovery in downstream demand drove the smart meter chip business to achieve high growth. Affected by declining gross margin and increased investment in R&D, the company's profit declined year-on-year. Looking ahead, the company's performance is expected to return to a growth trajectory as the volume of high-reliability new products combined with the recovery of downstream demand such as MCUs.
The company's leading edge in high-reliability business technology is remarkable, and product differentiation remains in strong demand. The company took the lead in successfully developing 100 million gate level FPGA, 1 billion gate level FPGA and PSoC chips in China. Since the launch of PSOC chips in 2021, the annual revenue growth rate has remained above 50%. In 2023, 440 million yuan of FPGA and other chip business revenue was contributed by PSoC products. The volume of high-end products enabled the company to maintain a leading competitive advantage. In recent years, FPGA and other chips have maintained high revenue growth. The company is promoting next-generation FPGAs and intelligent reconfigurable SoCs based on 1xnmFinFET advanced manufacturing processes. With technological advantages, the company continues to benefit from the trend of localization, and the gradual launch of new products will provide the company with continuous growth impetus.
The company's MCU and other businesses have gradually broken out of their trough, and product upgrades are expected to return to the growth trajectory. Since the second half of 2022, the company's MCU and non-volatile memory business has been under great pressure, and the pressure on the consumer goods business has had a significant impact on the company's short-term performance. With the gradual completion of the industry's inventory removal, the company's MCU and other products have gradually broken out of the industry's trough, and security and identification chips and smart meter chips have gradually recovered since the second half of 2023.
The three major product lines of safety and identification chips, non-volatile memories, and MCUs have all entered the automotive electronics field. As the product structure and customer structure continue to be optimized and upgraded, future performance growth is worth looking forward to.
Investment advice: As an established IC design company, the company continues to benefit from domestic replacement opportunities, and FPGAs have entered the harvest period. We maintain the company's net profit forecast for 2024-2026 at 838/10.57/1,270 million yuan, and the corresponding EPS of 1.02/1.29/1.55 yuan. Referring to the industry's comparable company valuation and its own performance growth rate, we gave the company 40 times PE in 2024, corresponding to a target price of 40.9 yuan/share to maintain a “strong” rating; the company was given a discount rate of 40% for AH shares, that is, 16 times PE in 2024, corresponding to a target price of HK$18.0 per share to maintain a “strong push” rating.
Risk warning: downstream demand falls short of expectations; new product launches fall short of expectations; production capacity support falls short of expectations; risk of changes in the external trade environment.