Incidents:

1. The company released its 2023 annual report. In 2023, it achieved revenue of 14.265 billion yuan, a year-on-year decrease of 11.50%; realized net profit attributable to owners of the parent company of 645 million yuan, a year-on-year decrease of 2.19%; and realized net profit without deduction of 6.73 yuan, an increase of 3.10% over the previous year.

2. Judging from the Q4 single-quarter results, achieved revenue of 3.293 billion yuan, a year-on-year decrease of 19.80% and a month-on-month increase of 1.93%; realized net profit attributable to owners of the parent company of 198 million yuan, an increase of 136.71% year-on-year and an increase of 32.34% month-on-month; realized net profit of 299 million yuan, an increase of 634.96% year-on-year and 174.36% month-on-month.

3. Judging from the 24Q1 single-quarter results, achieved revenue of 3.126 billion yuan, a year-on-year decrease of 20.52% and a decrease of 5.07%; realized net profit attributable to owners of the parent company of 122 million yuan, an increase of 20.57% year-on-year and a decrease of 38.51% month-on-month; realized net profit without return to mother of 105 million yuan, an increase of 19.42% year-on-year and a decrease of 65.01% month-on-month.

2023 revenue declined year over year, and gross margin increased markedly:

The company's revenue in 2023 decreased slightly compared to the same period last year. Among them, the company's storage semiconductors achieved revenue of 2,559 billion yuan, a year-on-year decrease of 3.34%; measurement smart terminals achieved revenue of 2,545 billion yuan, an increase of 41.81% year on year; high-end manufacturing achieved revenue of 9.122 billion yuan, a decrease of 21.33% year on year, mainly due to weak demand in medical products, consumer electronics and other industries, and overall revenue from the high-end manufacturing business declined. In terms of gross margin, the overall gross margin for 2023 was 16.52%, an increase of 4.66 pct over the previous year. The main reasons for the increase in gross margin were changes in product structure, cost reduction and efficiency, and the appreciation of the US dollar. Looking at 24Q1, the company's revenue fell nearly 20% year on year, and net profit to parent increased nearly 20% year on year. The main reason was that 24Q1 gross margin increased significantly year on year, driving the company's 24Q1 net profit margin to 5.55%, up 2.43 pct year on year.

The storage market is expected to recover in 2024:

After experiencing a decline in demand in 2023, the storage market is expected to experience a strong recovery in 2024, driven by AI. According to the World Semiconductor Trade Statistics Organization, the global semiconductor market is expected to reach 588.4 billion US dollars in 2024, an increase of 13.1% over the previous year. Among them, the share of the memory segment will rise to 22.06%, and the market size will rise to 129.8 billion US dollars, an increase of 44.8% over the previous year, ranking first in the semiconductor segment.

The company is a leading domestic storage and testing leader, and is expected to benefit deeply from market recovery and domestic replacement:

The company is a leading domestic storage packaging and testing company, mainly engaged in the packaging and testing of high-end memory chips. Its products include DRAM, NAND FLASH, and embedded memory chips. In 2023, the company completed 16-layer stacking technology development and mass production capacity, and achieved mass production of ultra-thin PoPT packaging technology (Packageon Package, laminated packaging technology). At present, the domestic storage market is basically monopolized by foreign investors, and there is huge room for domestic substitution. The company is expected to continue to benefit from the domestic substitution trend in the storage market and the recovery in downstream demand.

Investment advice:

We expect the company's revenue from 2024 to 2026 to be 17.118 billion yuan, 20.541 billion yuan, and 22,492 billion yuan, respectively, and net profit to mother of 932 million yuan, 1,238 billion yuan, and 1,509 billion yuan respectively. Considering the recovery of the semiconductor industry, the growth brought about by the company's transformation to storage, packaging and testing. The company was given 35.00 XPE in 2024, corresponding to a target price of 21 yuan. Give it a “buy-A” investment rating.

Risk warning:

The risk of new technologies, new processes, and new products not being industrialized as scheduled, the risk of industry and market fluctuations, the risk of international trade friction, and the risk of rising product production costs.