Incident: The company released a performance report for the first quarter of 2024. During the reporting period, it achieved operating income of 893 million yuan, a year-on-year increase of 10.3%, and realized net profit to mother of 161 million yuan, a year-on-year decrease of -14.35%, after deducting net profit of 155 million yuan, a year-on-year decrease of -13.93%.
Downstream demand rebounded steadily, and the company's performance returned to the growth channel. The company achieved revenue of 893 million yuan in Q1, up 10.3% year on year, up 12% month on month, and realized net profit of 161 million yuan, down -14.35% year on year and 133% month on month. Revenue by product line: security and identification chips were about 210 million yuan, down 3.37% year on year; non-volatile memory was about 292 million yuan, up 5.42% year on year; smart meter chips were about 92 million yuan, up 95.74% year on year; FPGA and other products were about 281 million yuan, up 23.25% year on year; test service revenue (after consolidation and offset) was about 26 million yuan, down 48.00% year on year. The company's gross margin for the first quarter was 56.65%, down 10.12 pcts year on year and up 6.98 pct month on month. In terms of costs, the company continued to maintain strong R&D investment in the first quarter, with R&D expenses of about 245 million yuan, an increase of 26 million yuan over the previous year. The R&D cost rate was about 27%. It continued to iterate technology and develop new products, while continuously enriching the product range to meet more application fields.
The electricity meter business is picking up, and the high-reliability business is growing steadily. Some of the company's products used in the consumer electronics and power electronics industry in the first quarter were affected by a steady recovery in demand from downstream customers. Product line revenue changed from a decline in the same period last year to an increase. Among them, smart meter chip revenue was about 92 million yuan, an increase of 95.74% over the previous year, returning to the growth channel. The company's FPGAs and some non-volatile memories used in high-reliability scenarios benefit from advanced and reliable technology, continuous expansion in application fields and steady growth in demand from major customers. Revenue has maintained steady growth, driving the company's overall revenue back to the growth channel. Furthermore, due to changes in product structure and price declines in some product lines, the company's gross margin declined year-on-year. As downstream demand continues to pick up and high reliability demand recovers, the company's performance is expected to gradually grow.
Domestic FPGA leaders have broad prospects for development. The company has four series of dozens of products: 10 million gate level FPGA, billion gate level and PSoC. It has the EDA tool ProciseTM with independent intellectual property rights for the entire process. It is a leading supplier of programmable device chips in China. Currently, this product line is promoting a new generation of FPGAs based on 1xnm FinFE's advanced manufacturing process. It targets application scenarios such as computer vision, machine learning, and high-speed digital processing, and provides a low cost, low power consumption, high performance, and high reliability product line for smart cockpits, video surveillance, medical imaging, network communication and other industries. Furthermore, FPGA technology is iterating in the direction of higher performance and larger capacity, and edge intelligence technology is driven by field perception requirements to improve performance, which is expected to drive the volume and price of FPGA chips to rise sharply. As one of the few domestic FPGA suppliers in the industry, the company will fully benefit from the demand brought about by the localization of the downstream market and has broad development prospects.
Investment advice: Considering the pressure on the company's downstream demand, we lowered the 2024/2025/2026 net profit to 8.01/9.
99/1,211 billion yuan (previous value: 11.76/1,453 billion yuan in 24-25 years), corresponding PE is 33/27/22 times. The company is one of the leading manufacturers in the mainland FPGA industry. In the context of localization, downstream demand is strong, the product structure continues to be optimized, and both scarcity and growth are maintained, maintaining a “buy” rating.
Risk warning events: FPGA market demand and boom may fall short of expectations, risk of falling product prices, risk of rising prices of upstream raw materials.