Introduction to this report:

The company's profit level is gradually recovering. 24Q1 revenue reached a record high during the same period. Niche storage is preparing to increase prices, and the company is expected to usher in a further increase in revenue and profit levels.

Key points of investment:

Maintain an increase in holdings rating. We maintained the company's 2024-2025 EPS forecast of 1.97/2.62 yuan, added the 2026 EPS forecast of 4.00 yuan, maintained the company's 2024 42x PE valuation level, maintained the target price of 82.74 yuan, and increased our holdings rating.

Gross margin gradually recovered, and 24Q1 revenue reached a record high for the same period. For the full year of 2023, the company achieved operating income of 703 million yuan, -28.25% year-on-year; net profit to mother was 100 million yuan, -71.63% year-on-year.

The 24Q1 company's performance was outstanding, achieving operating income of 247 million yuan, a record high for the same period of the year, +72.49%, +22.52% month-on-month, 24Q1 gross profit margin of 54.62%, a significant increase of 7.03 pcts month-on-month, and net profit of 66 million yuan after deduction of net profit of 66 million yuan, +293.40% year-on-year, and +206.91% month-on-month. Thanks to the continuous increase in DDR5 penetration rate and the gradual mitigation of inventory problems in the industrial chain, the company's SPD shipments increased significantly, while the traditional EEPROM market gradually recovered, driving the company's performance to recover quarterly.

DDR5 penetration continues to increase, and price increases in niche storage will continue to drive the company's performance recovery.

DDR5 is currently in a phase of rapid penetration. Combined with improvements in the inventory level of the industrial chain, the company's performance is expected to rise. Furthermore, the company's in-vehicle EEPROM and Nor Flash are progressing rapidly, and the cumulative shipment volume of Nor Flash products developed by the company based on the NORD process platform has exceeded 100 million units. Looking ahead to the future market, we believe that the prices of niche storage such as Nor Flash and SLC NAND will continue to rise, and the company is expected to experience a double increase in revenue scale and profitability.

Catalysts: Increased penetration of DDR5; rising prices for niche storage.

Risk warning: Market competition intensifies; traditional demand recovery falls short of expectations.