Incident: The company released its 23rd annual report and 24Q1 quarterly report, achieving annual revenue of 7.24 billion yuan (-27.9%); net profit to mother of 210 million yuan (-93.1%). Among them, Q4 achieved revenue of 2.23 billion yuan (+42.9%), +8.8% month-on-month; net profit to mother of 180 million yuan (+154.2%), +137.6% month-on-month. In 24Q1, the company achieved revenue of 2.23 billion yuan (+104.4%), net profit to mother of 80 million yuan (+124.0%), and operations improved quarterly.

Results improved quarterly, and 24Q1 cash flow improved significantly. In '23, due to weak markets such as computers and smartphones, the company's shipments decreased compared to '22; combined, unit sales prices fell, putting pressure on the company's revenue and profits. 1) Looking at a single quarter, the company's quarterly revenue continued to grow month-on-month. The quarterly revenue for '23 was 10.9/18.8/20.5/2.23 billion yuan, respectively, and increased 72.5%/8.9%/8.7% month-on-month since Q2. 24Q1 achieved revenue of 2.23 billion yuan, an increase of 104.4% over the previous year. This is mainly due to the company's continuous optimization of product structure and technical strength, and the competitiveness of the product market has improved; compounded by the recovery in the semiconductor industry's prosperity, the overall recovery in market demand. 2) In terms of profit margin, the company's annual gross margin and net margin were 21.6%/1.7%, respectively; 24Q1 gross margin and net margin both increased, to 25.0%/2.7%, respectively, with significant recovery. 3) In terms of cost ratio, the company's cost side control is good. The company's sales/management/R&D expenses rate in '23 was 0.7%/3.7%/14.6%, respectively, +0.1 pp/0.8 pp/6.1 pp compared to each other. 4) In terms of cash flow, the 24Q1 company's net cash flow from operating activities improved significantly, increasing 197.2% year over year to 40 billion yuan.

The product structure continues to be optimized, and 55nm revenue share has increased dramatically. 1) Looking at the product structure, the main products DDIC/CIS/PMIC/MCU accounted for 84.8%/6.0%/6.0%/1.8% of main revenue in '23; DDIC's share increased, mainly due to the relatively obvious recovery in DDIC market demand in '23. 24Q1's DDIC/CIS/PMIC/MCU accounted for 71.8%/13.3%/8.7%/3.5% of the main revenue respectively. 2) Looking at the process node, the company achieved large-scale mass production at 55nm in '23, and the capacity utilization rate continued to maintain a high level. The revenue share increased by 7.5 pp to 7.9% compared to '22; 90 nm/110 nm/150 nm accounted for 48.3%/30.5%/13.4%, respectively. In 24Q1, the company's 55nm/90nm/110nm/150nm accounted for 10.2%/44.7%/30.9%/14.2% respectively, and 55nm accounted for a further increase in the revenue share of the main business. The company's products are progressing smoothly. In '23, 55nm TDDI achieved large-scale mass production, and the 40nm high-voltage OLED platform was officially released.

In 24Q1, the company's 55nm single-chip, high-pixel back-illuminated image sensor (BSI) ushered in mass production; the self-developed 40nm high-voltage OLED display driver chip is expected to be mass-produced in small batches in 24Q2.

Actively expanding the market, research and development of silicon-based OLED-related technologies is progressing smoothly. In the field of OLED driver chip foundry, the company is developing 40nm and 28nm, and will have a complete OLED driver chip process platform in the future; as the OLED panel industry continues to develop rapidly, the company is expected to benefit from the increase in demand for OLED panel driver chips. In the automotive sector, the company actively cooperates with the needs of the industrial chain, lays out the automotive chip market, and related products have successively passed automotive-grade certification. In emerging application fields such as AR/VR, the company is progressing smoothly in silicon-based OLED-related technology research and development, and has carried out in-depth cooperation with leading domestic panel companies to accelerate application implementation.

Profit forecasting and investment advice. The company's net profit for 24-26 is estimated to be 88/13.8/1.58 billion yuan. Considering the company's active market expansion and continuous optimization of the product structure; abundant production capacity planning and high operating rate, the company was given 40 times PE in 24 years, corresponding to a target price of 17.6 yuan, maintaining a “buy” rating.

Risk warning: Risks such as high customer concentration, delays in process node technology research and development, and production capacity expansion falling short of expectations.