Incidents:
The company released its 2023 annual report, achieving operating income of 7.565 billion yuan, a year-on-year increase of 6.26%; net profit to mother of 2,531 billion yuan, a year-on-year decrease of 3.84%; net profit after deducting non-return to mother of 2,391 billion yuan, a year-on-year decrease of 2.88%.
The company released its 2024 quarterly report, achieving operating income of 1,141 million yuan, a year-on-year decrease of 26.16%; net profit to mother of 307 million yuan, a year-on-year decrease of 47.44%; and net profit after deducting non-return to mother of 227 million yuan, a decrease of 58.25% year-on-year.
Comment:
Insufficient industry demand affected the company's performance in the first quarter of '24: the company's 24Q1 sales revenue and net profit declined year-on-year, mainly due to insufficient downstream demand in the company's special integrated circuit business, and falling product sales and unit prices. The company's 24Q1 gross margin was 57.67%, down 8.98pct year on year, net margin was 27.42%, down 10.24pct year on year, and profitability was affected. The company continued to maintain a high level of R&D investment. The 24Q1 R&D cost was 292 million yuan, and the R&D cost rate was 25.59%, an increase of 5.54 pct over last year.
The core business still maintains an advantage, and new products are expected to enhance the company's competitiveness: in terms of special chips, the company's next-generation high-performance FPGA products have been recognized by some core customers and have entered the comprehensive promotion stage; the company maintains a leading position with the most complete domestic special memory product range and the most advanced technology; the newly developed special Nand Flash has been introduced to the market, and the special new memory has been developed; system-level chips represented by special SoPC platform products have been widely recognized by users. The fourth-generation products have completed early program promotion and can be applied in many fields. The newly expanded RF-SOC products have also been validated by core customers to meet application requirements in specific fields.
In terms of smart card business, the company and partners jointly launched an eSIM one-stop solution in 2023, which supports wafer-level personalized data writing, is compatible with remote eSIM configurations and 5G connections, and has obtained GSMA's SAS-UP qualification certificate. In terms of financial payment products, the company actively promoted the implementation of application projects and became a digital yuan hard wallet chip supplier for the Chengdu Universiade and Hangzhou Asian Games.
Profit forecasting, valuation and ratings: Taking into account weak downstream demand, we lowered the company's net profit to mother in 2024 and 2025 to $2,625 billion (-39.6%) and $3.185 billion (-42.7%), and added a 2026 performance forecast. We expect the company's revenue for 2024-2026 to be 84.38, 100.15, and 11.441 billion yuan, respectively, and net profit to mother will be 26.25, 31.85, and 3.592 billion yuan, respectively. The PE corresponding to the current market value is 19, 16, and 14 times. Although the company's performance declined due to industry demand, the company's core products still maintained their advantage. Waiting for the industry to pick up, we maintained the company's “buy” rating.
Risk warning: Industry demand continues to decline; profitability continues to decline.