Incidents:

The company released its annual report for '23. For the full year of '23, the company achieved revenue of 1,127 billion yuan, a year-on-year increase of 21.8%; realized net profit of 0.48 million yuan, a year-on-year decrease of 158.06%; and realized net profit deducted from non-mother of -65 million yuan, a year-on-year decrease of 296.18%. Gross profit margin 24.29%, net profit margin -4.28%.

In the 24Q1 quarter, the company achieved revenue of 405 million yuan, up 98.52% year on year and 12.5% month on month; realized net profit of 50 million yuan, up 277.41% year on year and a decrease of 5.66% month on month; realized net profit withheld from mother 62 million yuan, up 232.99% year on year, up 34.78% month on month. Gross profit margin 31.80%, net profit margin 12.33%.

Demand for downstream consumer products picked up in 24Q1, and the company's revenue and profit both achieved a month-on-month increase of 24Q1, benefiting from the recovery in downstream demand for consumer electronics products, etc. At the same time, the company's strategy to actively expand its market share was effective, and the company's revenue and net profit after deduction were both increased month-on-month.

In addition, the company's sales, management and R&D expenses increased 13.28% year over year, which was less than the increase in revenue, and the scale effect gradually became apparent. Furthermore, in 24Q1, the company confirmed asset impairment losses of -1,614,900 yuan, a year-on-year decrease of about 38 million yuan, and confirmed the change in fair value of Huada's nine-day strategic placement of -0.13 million yuan, a year-on-year decrease of 0.3 million yuan.

512 Mb NOR products have been mass-produced and shipped. Small and medium capacity NOR has successively completed automotive certification. The company's NOR product applications focus on Bluetooth, IoT, BLE, AMOLED, industrial control and other related markets. Mass production of 4 Mbit to 128 Mbit has been achieved under the 40nm process, and is at the leading technical level in the industry. At the same time, the company's ETOX process 512 Mbit products have also been mass-produced and shipped in '23. In addition, the company's small and medium capacity NOR automotive products have successively completed AEC-Q100 certification, which are mainly used in front-mounted vehicle navigation, central control and entertainment for some brand models. With the company's large capacity and rich product layout in the automotive market, the company is expected to continue to increase its market share in the NOR field.

Continuing to promote the application of EEPROM in the industrial control and automotive fields, the related share has increased significantly. The company continues to promote the application of EEPROM products in the industrial control and automotive fields. The proportion of applications in industrial control has increased significantly, which plays a role in stabilizing gross margin. At the same time, the company's automotive products have been delivered in batches to customers at home and abroad in applications such as body cameras, in-vehicle central control, and entertainment systems, and the share of automotive electronics in revenue has increased.

Actively expanding the “Storage+” series of products, MCU and analog chip revenue continued to grow in 2023. The company's MCU and other chips achieved revenue of 115 million yuan, an increase of 117.7% over the previous year; the shipment volume was 277 million units, an increase of 193.33% over the previous year. Based on the advantages of leading technology and ultra-low power consumption and highly integrated self-designed memory, the company has laid out the ARM Cortex-M core series 32-bit general-purpose MCU products, and the products have been gradually introduced into downstream application terminals such as consumer electronics and industrial control. In the field of analog chips, the company's VCM Driver can form a good synergy effect with EEPROM products, enhancing the company's competitive advantage and market share in the field of camera modules.

Investment advice

We expect the company's net profit to be 1,97/249/307 million yuan in 2024-2026, corresponding PE of 43.38/34.22/27.78 times, giving the first coverage a “gain” rating.

Risk warning

Downstream demand falls short of expectations, new product development and introduction falls short of expectations, etc.