Matters:
1) The company achieved revenue of 306 million yuan (yoy -29.41%) for the full year of 2023, gross margin of 14.58% (yoy-12.41pct), net profit to mother of 173 million yuan (yoy -914%), and net profit after deduction of 192 million yuan.
2) In 24Q1, the company achieved operating income of 81 million yuan (yoy +12.23%, qoq -8.34%), gross margin of 12.10% (yoy-3.77pct, qoq-2.94pct), net profit to mother of 0.3 billion yuan (yoy -77.00%, qoq loss reduction), net profit not attributable to mother - 38 million yuan (yoy -74.68%, qoq loss reduction).
Commentary:
The industry's performance during the downturn was under pressure, and the 24Q1 decline narrowed, and the inflection point of the boom can be expected. In 2023, the company's niche storage circuit boom declined, demand in the terminal market was weak, and industry competition further intensified. The company actively consolidated and expanded its market share, and product shipments increased year-on-year, but due to a sharp drop in product sales prices, the level of operating income and gross margin declined significantly. The company's expenses during the 2023 period increased compared to the same period last year. At the same time, in order to meet the company's future business plans and further enhance the core competitiveness and market share of the company's products, the company increased R&D investment and sales efforts. Sales expenses and R&D expenses increased a lot. In 2023, the company's R&D expenses increased 55% year-on-year. In 2023, the company depreciated inventory based on the principle of prudence, and prepared 100 million yuan for inventory price reductions, which is a significant increase over the previous year. The 24Q1 company's revenue was 81 million yuan (yoy +12%, qoq -8%). There was a slight decline from month to month during the off-season, but the decline narrowed significantly, and the inflection point can be expected.
Continue to increase investment in R&D to enhance the core competitiveness of storage and MCU. In 2023, the company continued to step up R&D and innovation, and steadily promoted the development of its original main business: 1) NOR Flash: The company actively promoted the R&D of multiple product lines, continuously optimized the advanced ETOX process, successfully enriched the product line, and achieved mass production of a full range of capacity products from 2 Mbit to 256 Mbit. In 2023, two products were completed. One product has already entered the sample delivery stage, and seven other products have successfully achieved mass production. The customer base has been expanded, and breakthroughs have been made in emerging terminal markets such as industrial control and display, and 5G cellular communication.
2) MCU: In 2023, a new low-power M3 core MCU general-purpose chip was successfully designed, which can be better used in high-speed brushless DC motors, automotive electronics, etc., and can bring a wider range of applications to clients. In addition, a series of peripheral IPs have been added to the chip, providing more possibilities for peripheral applications, including: CAN bus applications, SDIO peripherals, and USB control peripheral interfaces. In terms of software security, the company uses industry-leading program secrecy design technology to provide strong security protection for MCU chips and significantly improve product security and attack resistance. At present, the company's MCU business has formed a full range of M0 product lines, providing customers with diverse choices, and has made significant progress in major customer development.
A forward-looking layout integrated chip, a new blue ocean of AI on the Nuggets side. In the field of AI chips, the work focuses on three core directions: the development and design of AI computational inference chips, the development of TinyML AI software, and the marketing of AI module modules. 1) In terms of AI computational inference chips, the company optimized and iterated the calculation module based on the first version of the CiNor principle verification, reduced energy consumption, improved calculation accuracy, and expanded the calculation scale to adapt to larger AI algorithm models. The success of Hengxin's No. 2 chip streaming has taken a key step in commercializing the NOR FLASH integrated memory and computing chip. In the second half of 2023, the company began research and evaluation of SRAM integrated memory and calculation chips, clarifying the technical route and product specifications.
2) In the field of TinyML AI software development, five types of algorithm models have been successfully developed, including visual segmentation, visual recognition, speech recognition, speech pattern, and voice noise reduction. The deployment of these TinyML AI algorithms on various computing hardware platforms such as ARM, RISC, and DSP has also been further realized, enhancing the applicability and flexibility of the software. 3) In terms of commercializing AI modules, the company also achieved remarkable results in 2023. 23Q2 sold AI vision modules for the first time; 23Q4 achieved the first shipment of AI voice modules.
Investment advice: The company is a leading enterprise in the domestic NOR Flash field, and the MCU & AI business is growing rapidly. Considering the weak demand in the industry, we lowered our profit forecast. The company's net profit for 2024-2026 is 0.21/0.72/122 million yuan (2024/2025 original value is 0.75/135 million yuan), corresponding EPS is 0.25/0.87/1.47 yuan (2024/2025 original value is 0.91/1.63 yuan), giving it a “recommended” rating.
Risk warning: downstream demand falls short of expectations, industry technology iteration falls short of expectations, capacity support falls short of expectations