Shannon Xinchuang announced that its wholly-owned subsidiary and Chuangtai have received an AMD dealer confirmation letter. In view of Co-Chuangtai's intention to purchase AMD products, after friendly negotiations, AMD sent an “AMD Dealer Confirmation Letter” to Allied Chuangtai, agreeing that UFCT and AMD's designated dealers will carry out the procurement business. The specific details of the quantity, amount, model, etc. of the purchased products are subject to a separate purchase order actually signed and effective by UFCT and AMD's designated dealer.

AMD - the world leader in processor chips. AMD was founded in 1969 in Silicon Valley, USA. After more than 50 years of innovation and development, AMD has grown into a global leader in high-performance and adaptive computing. Currently, the company's main products include central processing units, microprocessors, motherboard chipsets, graphics processors, random access memories, etc. In 2023, AMD achieved total revenue of $22.68 billion, GAAP gross profit margin of 46.1%, and GAAP net profit of $850 million. According to Mercury Research, 2024Q1 AMD's market share (in terms of sales) of server x86 CPUs reached 33.0%, desktop x86 CPU market share 19.2%, and smartphone x86 CPU share 14.9%, making it the fourth largest IC designer in the world.

Instinct accelerators lead AI and high-performance computing. In the field of AI and HPC, AMD launched two of the latest generation Instinct MI300 series products in 2023. As an APU processor, the MI300A combines the CPU and GPU with 8 HBM3s with a total capacity of 128GB, designed to process large data sets and is suitable for computation-intensive modeling and complex analysis; the MI300X accelerator replaced the three “Zen 4” CPU chips integrated on the MI300A with two additional AMD CDNA 3 XCD chips. Additionally, an additional 64GB of HBM3 memory has been added, and the total HBM capacity can reach 192GB. It is designed for large language models and other cutting-edge AI applications that require training and large-scale inference on large data sets. The AMD2024Q1 law will guide the annual sales volume of MI300 series products to 4 billion US dollars.

Computing power+memory to meet customers' key AI needs. Shannon Xinchuang's main revenue comes from the semiconductor distribution business. The main distribution products include enterprise-grade storage products such as DRAM and NAND, as well as main control chips used in consumer electronics. The enterprise storage products distributed by the company are used in servers in data center construction and other fields. In 2023, about 60% of the company's distribution business came from SK Hynix and 35% from MTK. As prices in the storage market pick up, the company expects SK Hynix's share to increase in 2024, and the share of DDR5 will increase dramatically. Co-Chuangtai has now received an AMD dealer confirmation letter. The company will use the synergy of sales channels to sell new products to the company's existing customers to meet the diversified needs of customers, help enhance customer stickiness and enhance the company's competitiveness, and will have a positive effect on the company's financial situation and operating results this year and future. We believe that receiving the confirmation letter from the AMD dealer will help the company to explore customer needs in depth on the basis of the original enterprise-level storage business, and is expected to provide customers with key computing power+memory solutions in the rapidly developing field of AI and high-performance computing.

The market space for enterprise-grade SSDs is vast, and Hype Storage is driving the domestic replacement process. In May 2023, Shannon Xinchuang issued an announcement. The company and Shenzhen Dapuwei and other companies jointly established Haipu Storage, of which Shannon Xinchuang holds 35% of the shares. Haip Storage focuses on the R&D, production and sales of enterprise-grade storage products. The products cover enterprise-grade NVMESSDs and RDIMMs, and aim to provide high-performance, high-reliability storage solutions for servers and data centers. Among them, Shenzhen Haipu is mainly engaged in eSSD, which has achieved small sales in 2023. With the good basic advantages of listed companies' original distribution business, the company has a high starting point in terms of raw material supply and customer introduction, and domestic replacement is being accelerated.

We expect Shannon Xinchuang to achieve revenue of 172/225/29.4 billion yuan and net profit to mother of 5.9/8.5/1.19 billion yuan in 2024-2026, maintaining the “Highly Recommended” rating.

Risk warning: Risk of gross margin fluctuation due to price fluctuations of IC products such as memory, risk of supplier dependency, risk of international trade disputes.