Beijing Junzheng is a leading integrated circuit design enterprise in China, mainly engaged in R&D and sales of integrated circuit chip products. The company's main product line includes computing chips, memory chips, analog and interconnect chips, and its products are widely used in automotive electronics, industrial and medical, communication equipment, and consumer electronics.

The company has published the 2023 Annual Report and the 2024 Quarterly Report. In 2023, the company achieved revenue of 4,531 billion yuan, a year-on-year decrease of 16.28%; net profit to mother was 537 million yuan, a year-on-year decrease of 31.93%. In the first quarter of 2024, the company achieved operating income of 1,007 billion yuan, a year-on-year decrease of 5.80%; net profit to mother was 87 million yuan, a year-on-year decrease of 23.90%.

The industrial market was sluggish in '23, and demand is expected to bottom up in '24: demand in the automotive, industrial and other industries is sluggish in 2023. Conditions such as overcapacity and industrial chain inventory pressure have further affected customer demand in the industry market, leading to pressure on chip product market sales to the industry market, and the company's overall performance declined in 2023. In 2024, with the gradual elimination of product inventories in all parts of the industrial chain in the industry market and the gradual recovery of the global economy, it is expected that industry market demand will gradually pick up in 2024.

In 2023, demand in some consumer markets picked up, and inventory removal trends were good, driving a further recovery in market demand, causing some consumer markets to show a healthy demand trend. It is expected that in 2024, with further inventory removal in the industrial chain, more consumer market segments will enter an upward channel, and the market is expected to gradually enter a healthy stage of development.

Adhering to the “computing+storage+simulation” product strategy, the core competitiveness continues to improve: for the industry market, the company's memory chip product line and analog and interconnection chip product line can provide a rich range of products to fully meet the diverse needs of the industry market for this type of product. The company's main product, DRAM, is mainly aimed at professional-level applications with high technical barriers. It can meet the requirements of industrial, medical, backbone communication and vehicle grade products, and has the characteristics of stable operation, energy saving and consumption reduction in extreme environments. The next-generation process developed by the company can support larger capacity DRAM products to meet the demand for higher capacity DRAM products brought about by the continuous development of automotive intelligence.

In terms of computing chips, market sales of the company's computing chips in the fields of security monitoring, biometrics, printers, smart home appliances, and smart door locks are gradually recovering in 2023. The company continues to advance the commercialization process of RISC-V CPUs, revises and optimizes relevant CPU cores according to market requirements, and continues to promote the development of new versions of RISC-V CPU cores; completed various functional and performance tests of X2600 chip products, and completed mass production of X2600; in the field of video surveillance, the company's T20, T30, and T40 product lines have formed a pattern covering a full range of middle and low end products to meet different types of market needs.

Profit forecast, valuation and rating: Affected by insufficient demand in the industry market, the company's performance declined in the first quarter of 2023 and 2024. We lowered the company's net profit to mother in 2024 and 2025 to 755 million yuan (-31.6%) and 930 million yuan (-35.7%), and added a 2026 performance forecast. We estimate that the company's revenue for 2024-2026 will be $54.10, 64.81, and 7.604 billion yuan, respectively, and net profit to mother will be 7.55, 9.30, and 1,122 billion yuan, respectively. The PE corresponding to the current market value is 38, 31, and 26 times. Considering that the company's products still have strong competitive strength in the industry market, and that industry market demand is expected to bottom out and rebound in 2024, driving the company's performance to resume growth, we maintain the company's “buy” rating.

Risk warning: Market demand recovery fell short of expectations; competition in the consumer market intensified; prices of niche storage products fell short of expectations.