Key points of investment
According to CFM on May 22, the original storage factory is actively switching production capacity to meet the HBM and DDR5 express order needs of some Internet vendors, and DDR4 supply may be in short supply.
Production capacity is shifting to HBM/DDR5 high value-added products, and niche DRAM prices are expected to rise moderately. According to CFM's May 22, since 24Q2, some domestic Internet manufacturers have urgently ordered HBM and DDR5 products from the original manufacturer. At the same time, since HBM production lines have switched to HBM3/3E advanced manufacturing processes, in response to customer HBM2E express order demand, some original factories can only urgently add production lines and switch some DDR4 production lines to HBM2E; it is expected that by the end of 2024, about 80% of the original factory's DRAM production capacity will switch to HBM2E. DDR5, DDR4 supplies may be in short supply.
In 2023, the company's memory chips achieved revenue of 4,077 billion yuan, a year-on-year decrease of 15.51%; gross profit margin was 32.99%, a year-on-year decrease of 7.10 percentage points. According to the April 2024 investor survey minutes, the company stated that the NOR supply and demand relationship has returned to balance, and niche DRAM/SLC NAND prices are expected to rise moderately in the future. 1) DRAM:
In 2024, the company's DRAM procurement amount was about 852 million yuan, an increase of about 135.36% over the previous year. The company said that DDR3 4Gb/2Gb will be shipped in batches in 2024; DDR4 8Gb products have now been filmed, and samples are expected to be delivered to customers by 24H2; LPDDR4 is under development. The company expects DRAM products to cover major niche market demand and achieve mass production supply in 2025. 2) NOR: Shipments reached a record high in 2023, with a year-on-year increase of 16.15% to 2,533 billion units, and maintained a good level of shipment volume and operation in the fourth quarter of the traditional off-season. At present, the full range of 55nm process node products have been mass-produced. The 2Mb to 2Gb capacity of automotive-grade SPI NOR products has been deployed throughout the line, and stable operation is achieved in scenarios with high safety requirements such as automobile chassis suspension systems. 3) NAND: Shipments increased significantly year-on-year in 2023. Both 38nm and 24nm processes are fully mass-produced, and the capacity covers 1Gb to 8Gb.
The decline in product prices put pressure on the 2023 performance. Demand picked up in 24Q1, and the company's performance bottomed out and rebounded. Due to weak demand in the terminal market and fierce competition in the industry, product prices dropped significantly, and the company's performance in 2023 was under pressure. In 2023, the company achieved revenue of 5.761 billion yuan, a year-on-year decrease of 29.14%; net profit to mother of 161 million yuan, a year-on-year decrease of 92.15%; net profit after deducting non-return to mother of 27.406 million yuan, a year-on-year decrease of 98.57%; gross profit margin of 34.42%; and a 12.98% year-on-year increase in shipment volume to 3.122 billion units.
Thanks to a recovery in consumer demand and an increase in memory chip shipments, the 24Q1 company's performance bottomed out and rebounded.
24Q1 achieved revenue of 1,627 billion yuan, up 21.32% year on year, up 19.10% month on month; net profit to mother of 205 million yuan, up 36.45% year on month, turning loss into profit; net profit after deducting non-return to mother net profit of 184 million yuan, up 41.26% year on month, turning loss into profit; gross profit margin of 38.16%, which was basically the same year on year, up 3.62 percentage points from month to month.
The company launched the 2024 Stock Options Incentive Program. A total of 45 people were encouraged. The exercise price is 59.18 yuan/share. The assessment target is 2024-2027 revenue of at least 72.94/86.20/98.00/11.800 billion yuan, respectively.
MCU department stores continued to grow, and the market share of sensor products increased steadily for MCU: in 2023, MCU achieved revenue of 1,317 billion yuan, a year-on-year decrease of 53.46%; gross profit margin was 43.10%, a year-on-year decrease of 21.76 percentage points. The company said the 23H2 MCU revenue decline gradually narrowed, and 23Q4 showed signs of stabilization. The company has now successfully mass-produced 46 series and over 600 MCU products, covering the 110/55/40/22nm process. In 2023, the company launched China's first GD32H series ultra-high performance MCU based on the M7 core.
In the automotive sector, the company has cooperated with leading domestic Tier 1 platforms to develop products, such as Atech body control zones and Baolong Technology tire pressure monitoring systems, and has also cooperated with a number of leading international companies; the automotive-grade GD32A series MCU currently provides a total of 10 models in 4 packages. Furthermore, the company lays out PMU products around MCU and actively explores consumer, industrial, and Netcom markets.
Sensors: Sensor achieved revenue of 352 million yuan in 2023, a year-on-year decrease of 18.97%; gross profit margin was 16.00%, which was basically the same as the previous year. Thanks to the pioneering recovery in the mobile phone market, the company's sensor products synchronized with the market, achieved a high year-on-year growth in shipments, and the market share increased. The company ships nearly 100 million touch chips a year, supporting large ITO impedance, single-layer multi-point, and ultra-narrow bezel functions, and is widely used in OGS touch screens; the number of product channels covers 26 to 72 channels, while achieving full coverage of screen sizes from 1 inch to 20 inches. The company's fingerprint products have been successfully used in various commercial front/rear/side capacitive and optical solutions for flagship, high and mid-range smartphones.
Investment advice: Given the current demand situation in the niche storage industry, and the MCU is still at a low point in the industry, we adjusted our original 24/25 performance forecast. It is estimated that from 2024 to 2026, the company's revenue will be 73.20/90.77/10.529 billion yuan, respectively (the original forecast value for 24/25 was 82.14/9.528 billion yuan), with growth rates of 27.1%/24.0%/16.0%, respectively; net profit to mother will be 9.92/15.06/2.017 billion (the original forecast value for 24/25 was 15.07/1,756 billion yuan), respectively, with growth rates of 515.6%/51.8%/33.9% for PE, respectively 36.0/26.9 The company continues to iterate the memory chip process and continues to expand MCU department stores. Driven by factors such as storage capacity changes and a recovery in market demand, the company's revenue scale/profitability is expected to return to growth. Continued recommendation, maintaining a “buy-A” rating.
Risk warning: Downstream terminal market demand falls short of expectations; risk that new technologies, new processes, and new products cannot be industrialized as scheduled; market competition increases risks; systemic risks, etc.