Core views

1. 2023 was affected by the slump in overall semiconductor demand, and the company's short-term performance was under pressure.

The company's operating performance improved in the first quarter of 2024. Revenue resumed positive year-on-year growth, and gross margin increased significantly from month to month.

2. The company insisted on increasing investment in R&D. The annual R&D expenditure was 737 million yuan, an increase of 17.78% over the previous year, and 1,029 R&D personnel, an increase of 14.84% over the previous year. The increase in R&D investment and the accumulation and improvement of the R&D team's experience have led to a continuous increase in the variety and quantity of the company's products. More than 900 new products were launched in 2023. By the end of 2023, the company had more than 5,200 products to sell in 32 categories, continuing to enrich the product matrix and save growth momentum.

3. As a leading enterprise in the domestic analog integrated circuit design industry, the company has broad room for future growth against the backdrop of industry prosperity rebounding and continued promotion of localization.

occurrences

The company released its 2023 annual report and 2024 quarterly report. The company achieved operating income of 2,616 billion yuan in the full year of 2023, a year-on-year decrease of 17.94%; realized net profit of 281 million yuan, a year-on-year decrease of 67.86%; and a gross profit margin of 49.60%, a year-on-year decrease of 9.38 pcts. In 2024Q1, the company achieved operating income of 729 million yuan, an increase of 42.03% year on year; realized net profit of 54 million yuan, an increase of 80.04% year on year; gross profit margin of 52.49%, an increase of 5.27 pct over the previous year.

Brief review

1. The 2023 results were under short-term pressure and returned to the growth trajectory in the first quarter of 2024.

The weak global economy did not improve in 2023, and overall demand for semiconductors remained sluggish. As a result, the company's short-term performance was under pressure, and product sales volume and average sales prices declined. The company's revenue in 2023 was 2,616 billion yuan, down 17.94% year on year, and the comprehensive gross margin was 49.60%, down 9.38 pct year on year. Among them, power management product revenue was 1,746 billion yuan, down 12.31% year on year, gross profit margin was 46.10%, down 9.31 pct year on year; signal chain product revenue was 870 million yuan, down 27.07% year on year, gross profit margin was 56.64%, down 8.27 pct year on year. While revenue and gross margin declined, the company maintained a high level of R&D investment, and net profit to mother fell 67.88% year on year in 2023. Despite overall pressure on the 2023 performance, the 2023Q4 business conditions showed positive signs of improvement, achieving operating income of 734 million yuan in a single quarter, a year-on-year decrease of 5.25%, and remained flat month-on-month; net profit to mother was 139 million yuan, an increase of 12.87% year-on-year, and 167.31% month-on-month. In 2024Q1, the company's revenue returned to the growth trajectory, achieving revenue of 729 million yuan, an increase of 42.03% over the previous year, and the growth rate changed from negative to positive; realized net profit to mother of 54 million yuan, a sharp increase of 80.04% over the previous year; gross margin was 52.49%, up 5.27 pcts from month to month, with significant improvement.

2. The company insists on high R&D investment and continues to enrich the product matrix to save growth momentum.

Although the company's performance in 2023 was affected by overall demand for semiconductors, the company insisted on increasing R&D investment. The annual R&D expenditure was 737 million yuan, up 17.78% year on year, accounting for 28.18% of revenue and 1,029 R&D personnel, up 14.84% year on year, accounting for 72.72% of the company's total number of employees.

At the same time, the company implemented the first award of the “2023 Stock Options Incentive Plan” to promote the company's continuous and rapid development. The increase in R&D investment, the accumulation of R&D team experience, and the improvement of technical strength have led to a continuous increase in the variety and quantity of the company's products. In 2023, the company launched a number of new products with the world's advanced level to meet market needs, including more than 900 products such as high-precision voltage benchmarks, high-precision current detection amplifiers, and automotive-grade synchronous step-down converters. By the end of 2023, the company had more than 5,200 products to sell in 32 categories, which can meet the diverse needs of customers. Analog chips have the characteristics of strong versatility, diversification, long life cycle, and wide application. The company's continuous enrichment of the product matrix will create a solid foundation for future growth.

3. The industry's prosperity is expected to bottom out and rise, and there is plenty of room for localization.

According to WSTS data, the global analog chip market in 2023 was about US$81.05 billion, down 8.9% year on year. The global analog chip market is expected to reach US$84.1 billion in 2024, an increase of 3.7% over the previous year. Looking at specific downstream terminals, after a long period of adjustments in the consumer electronics sector, inventories are gradually returning to healthy levels and restarting growth. Taking smartphones as an example, IDC data shows that 2024Q1 global smartphone shipments increased 7.8% year over year to 289 million units. Although the smartphone industry has not completely escaped its difficulties, positive year-on-year growth for 3 consecutive quarters is a strong indicator that the recovery is progressing smoothly. Currently, there is still some downward pressure in the industrial and automotive sectors, but TI said at the 2024 first quarter results briefing that it has observed that some industrial customers are nearing the end of the inventory consumption cycle, reflecting that the boom in the industrial sector is expected to bottom out. Additionally, TI said that domestic analog IC companies have a share of about 12% of the mainland China market. Since China will still be the world's largest consumer market for analog chips in the short to medium term, accounting for more than 50% of the global analog chip market in 2023, domestic analog chips still have a lot of room to increase the localization rate. As a leading enterprise in the domestic analog integrated circuit design industry, the company's product performance and quality are compared to world-class analog manufacturers. Some key performance indicators are superior to similar foreign products, customer recognition and brand influence are constantly increasing, and its market share continues to expand. Against the backdrop of industry prosperity bottoming out and gradually recovering and localization continuing to advance, the company has broad room for future growth.

4. We recommend continuing to pay attention to the company and maintain a “buy” rating.

The company's 2023 performance was under pressure in the short term, but revenue in the first quarter of 2024 resumed positive year-on-year growth, and gross margin increased 5.27pct month-on-month, which was a significant improvement.

As a leading enterprise in the domestic analog integrated circuit design industry, the company insists on increasing investment in R&D. It launched more than 900 new products in 2023, and already has more than 5,200 products in 32 categories that can be sold. The continued enrichment of the product matrix will create a solid foundation for future growth. We expect the company's revenue from 2024 to 2026 to be 3.191 billion yuan, 3.862 billion yuan, and 4.636 billion yuan, respectively, and the estimated net profit to mother will be 364 million yuan, 622 million yuan, and 895 million yuan respectively. The current stock price corresponds to PE of 97, 57, and 40 times, respectively, to maintain a “buy” rating.

5. Risk warning

Market demand falls short of expectations. Affected by macroeconomic changes, the development of the downstream sector faces a complex and serious situation. There is a risk that market demand falls short of expectations due to certain uncertainties; there is a risk that product development and iteration progress falls short of expectations; there is a risk that price and gross margin will fall short of expectations due to increased market competition; profit forecasting hypothetically predicts the company's product sales volume based on the company's downstream application needs. There is a possibility that the actual amount of demand is lower than the expected amount. As a result, the company's revenue will decline. According to sensitivity estimates, if the number of products sold falls At 10%, the company's corresponding revenue decreased by 10%, and net profit to mother decreased by about 9.7%.