Event: The company released the 2023 annual report and the 2024 quarterly report

Performance improved significantly quarterly, increasing investment to help long-term growth: the company achieved revenue of 3.59 billion yuan in 2023, an increase of 20.3%, net profit to mother - 620 million yuan, a year-on-year decrease of 977%, and the company's gross profit margin for 23 years was 1.8%, a decrease of 12 pcts. On the cost side, the sales/management/ R&D expense ratio was 4.6%/4.0%/7.0%, an increase of 1.3/1.6/2.8pcts. Looking at a single quarter, 2023Q4 has reached a revenue inflection point, with revenue reaching 1.47 billion yuan, up 83.5% and 50.7%; gross margin was 9.3%, up 11.2 pcts month-on-month; 24 Q1 continued to improve, achieving revenue of 1.73 billion yuan, up 305.8%, net profit to mother 170 million yuan, up 233%, gross margin of 24.7%, and 15.4 pcts month-on-month. The performance improved significantly from quarter to quarter, turning a loss into a profit. The company's performance fluctuation is mainly due to: 1) The storage industry where the company is located is in a downward cycle throughout 2023. Prices of storage products have been repaired since 2023Q4, greatly improving the company's performance; 2) The company continued to increase R&D investment in the fields of solution research and development, chip design, advanced packaging and testing equipment. The total R&D expenses for 23 years were 250 million yuan, an increase of 98%, and 24Q1 R&D expenses of 98 million yuan, an increase of 218%, helping the company grow in the long term.

Actively expand domestic and foreign first-line customers and strengthen industrial resource collaboration: 1) Based on long-term technology accumulation and market development, the competitiveness of the company's products and brands continues to improve. In the mobile phone sector, the company's embedded storage products have entered well-known customers such as OPPO, Voice, Motorola, HMD, ZTE, and TCL; in the PC field, the company's SSD products have now entered well-known domestic and foreign PC manufacturers such as Lenovo, Acer, HP, and Tongfang; in the domestic PC field, the company is the main supplier of SSD products and occupies an advantageous share; in the field of smart wearables, the company's products have entered well-known international smart wear manufacturers such as Google, Xiaomi, Meta, and Little Genius; in the field of vehicle regulations, the company's products are being introduced into leading domestic cars Enterprise and Tier 1 customers. 2) The company has further deepened cooperation with major global storage wafer manufacturers and wafer foundries, and has established a continuous and stable cooperative relationship. The company is also one of the domestic semiconductor memory manufacturers that have passed the most CPU, SoC and system platform certifications. The company's main products have entered the AVL (Qualified Supplier List) list of mainstream CPU, SoC and system platform manufacturers such as Qualcomm, Google, Intel, Rockchip, Quanzhi, Realtek, and Junzheng. The company continues to strengthen customer development and industrial collaboration.

Integrated R&D packaging and testing layout, steady development of the “5+2+X” strategy: The company pioneered the entire industry chain in storage solution research and development, main control chip design, memory sealing/wafer-level advanced sealing and storage testing machines. The company's wafer-level advanced packaging and testing project officially landed in the Songshan Lake High-tech Zone in Dongguan in November 2023. The company focuses on five major application markets, lays out the second growth curve of “chip design and wafer-level advanced packaging and testing”, and continues to explore and develop innovative fields such as integrated storage and calculation, new interfaces, new media, and advanced test equipment. The “5+2+X” strategy is developing steadily.

Profit forecast and investment rating: Combined with the impact of 23-year storage prices, etc., we are optimistic that the storage industry will continue to be driven by the upward cycle, AI and other demand, adjust the 24/25 profit forecast, and add a 26-year profit forecast. The company's net profit for 2024-2026 is 7.2/8.6/1.02 billion yuan, respectively (the value was 75/870 million yuan before 24/25), and the company's current market value corresponds to the 24/25/26 PE of 31/26/22 times, maintaining the “buy” rating.

Risk warning: Downstream demand recovery falls short of expectations; new business progress falls short of expectations.