Incident: The company released its 2023 annual report and 2024 quarterly report. In 2023, the company achieved revenue of 520 million yuan, +25.41% year over year; realized net profit of 65 million yuan, +21.04% year on year; realized deducted non-net profit of 51 million yuan, +64.16% year over year. In 2024, Q1 achieved revenue of 118 million yuan, +45.48% YoY, -17.67%; realized net profit to mother of 8534,600 yuan, +6.57% YoY and -52.93% month-on-month; realized deducted non-net profit of 54.695 million yuan, +944.28% YoY and -62.36% month-on-month.

Consumer electronics demand has picked up+new products have continued to be released, and performance has been rising steadily in 23 years: The steady rise in the company's revenue in 2023 is mainly due to a gradual recovery in market demand in the consumer electronics industry. Various product lines have been introduced by leading domestic and foreign brand customers, and various new products have continued to be released. By product, the revenue of Bluetooth audio SoC chips/portable audio and video SoC chips/endside AI processor chips was 3.86/1.00/34 billion yuan, or +42.58%/-11.74%/+30.76% compared with the same period last year. Among them, the sales revenue of the smartwatch SoC chip series increased three-fold year-on-year in 2023, and the sales revenue of the Bluetooth speaker SoC chip series grew rapidly. Among them, sales revenue for low-latency, high-sound wireless audio products doubled. The company's gross margin in '23 was 43.73%, +4.39pcts year on year; net margin was 12.51%, -0.45pct year on year. The sharp increase in the company's profit side is mainly due to the company's continuous optimization of the product structure. The unit sales cost has decreased, and the share of sales of high-margin products has increased. The scale effect brought about by this has raised the company's overall profit level. The 24Q1 company's gross margin was 45.42%, +4.42pcts year on year, -0.14pcts month on month; net margin was 7.20%, -2.64pcts year on year, -5.40pcts month on month. The company's sales/management/ R&D/ finance expenses in '23 were 3.36%/6.49%/31.80%/-7.97%, respectively. -0.05/-0.45/+1.73 /+2.15 pcts year-on-year, respectively.

The product line has blossomed, speeding up the AI layout on the end side: 1) Bluetooth speakers: The company has become a mainstream supplier of terminal brands in the industry and has replaced high-end Bluetooth speaker SoCs in China. The company's Bluetooth speaker chips are used in brand products such as Harman, SONY, Anker Innovation, and Razer, and have performed well. In 2023, the sales revenue of the company's Bluetooth speaker SoC chip series grew rapidly. Among them, sales revenue for low-latency, high-sound wireless audio products doubled. In 2024, the company will firmly implement the big customer strategy, continue to increase in-depth cooperation with high-end brand customers, and increase the company's penetration rate in the Bluetooth speaker customer market. The company expects sales of major customers represented by Harman and SONY to start rapidly in 24. 2) Smartwatch: In 2023, the company's first-generation smartwatch chip ATS3085C/85L/85 was rapidly deployed in domestic and foreign markets with its low power consumption, high frame rate and high performance, and was used as the main control chip in various terminal watch models of brand customers such as Xiaomi, Honor, Noise, Fire-Boltt, Titan, Realme, Nothing, Boat, etc., and had outstanding performance. Shipments reached a record high.

3) End-side AI: The company's latest generation of high-end AI audio chips based on SRAM memory calculation has been released and is currently in the internal testing stage. The company expects to provide sample chips to downstream customers in the middle of this year.

The chip uses a 22nm manufacturing process, and the architecture is upgraded to a CPU+DSP+NPU three-core heteromorphism, which can bring more powerful computing power to battery-powered portable products at a lower power consumption budget and achieve a higher energy consumption ratio.

The Indian market is starting quickly, and new watch products are expected to be released quickly: according to Counterpoint Research data, Indian smartwatch shipments increased 50% year-on-year in 2023. Fire-Boltt, Noise, and BOAT ranked first, second, and third with shares of 30%, 25%, and 17%, respectively. The company's first-generation smartwatch single-chip ATS3085 series has been used in high-end models of well-known brands such as Noise, Fire-Boltt, BoT, and Realme, and has penetrated all aspects into India's smartwatch head brands. As of June 23, the monthly shipment volume has reached the level of one million, which is expected to continue to benefit from the demand for smartwatches in the Indian market.

In July '23, the company launched a second-generation smartwatch chip. Currently, terminal products are shipped in overseas markets, and terminal products for domestic and foreign customers will be launched in batches in the future. The company said that it currently has sufficient orders, downstream customers are more willing to open new cases, and the new orders have been successfully completed. Based on customer satisfaction with the overall performance of the 2.5D GPU interface and low power consumption technology of second-generation smartwatch chips, and good market feedback, we believe that the company's smartwatch chips are expected to rapidly contribute to performance in '24.

Upgraded to “buy” rating: The company continues to optimize its product structure. With the rapid launch of high-end speaker chips and smartwatch chips, profitability is expected to continue to increase. The company firmly implements the big customer strategy and continues to increase the penetration rate of domestic and foreign first-tier brands. At the same time, continuously expanding new customers and new markets, continuously optimizing and upgrading existing product lines, and iterating more advanced chip products, it also injects momentum into the company's future business development. In terms of growth, the company continues to lay out high-growth new products. High-end AI audio chips based on SRAM memory calculation are expected to provide sample chips to downstream customers in the middle of this year to meet the AI needs of smart terminal devices, so we raised the rating to “buy”. We estimate that the company's net profit from 2024 to 2026 will be 89 million yuan, 118 million yuan, and 152 million yuan, and EPS is 0.73 yuan, 0.96 yuan, and 1.25 yuan respectively.

Risk warning: the risk of macroeconomic fluctuations, the risk of downstream demand falling short of expectations, the risk of technology development and iterative upgrading, and increased market competition.