The recovery in the consumer market led to revenue growth, and the gross margin of storage products increased sequentially
The company achieved a year-on-year increase in revenue in Q1 of 2024, with a year-on-year increase of 21.32% and a year-on-month increase of 19.10%. Thanks to demand recovery in 2024, the consumer market experienced sluggish demand in 2023. In particular, mobile phones and personal consumer goods around mobile phones showed a relatively clear recovery trend, driving the company's product sales for this application to increase. At the same time, the company continued to invest in R&D and product iteration. The competitiveness of all product lines increased. Among them, Flash, DRAM and MCU all achieved sales volume and operation Increase in revenue. In 2024, Q1 achieved a gross profit margin of 38.16%, a year-on-year increase of about 4 percentage points, mainly due to a significant month-on-month increase in gross margin for storage products. The main reasons: 1) the switching of new products and processes improved product competitiveness; 2) changes in the product sales structure and an increase in the sales ratio of products with high gross margin; 3) In terms of product sales unit prices, the price increase of DRAM products led to an increase in gross margin; 4) Consumer demand in Q1 rebounded, which accelerated the company's inventory removal. MCU products have a relatively stable month-on-month gross margin, and sensor gross margins have also increased.
Niche DRAM prices continue to rise moderately, and leading players are benefiting steadily, moderately and positively
Demand for mainstream storage products was weak and prices dropped sharply in 2023, leading to a sharp drop in the price of niche storage products. As the server and mobile phone markets pick up, major players in the industry are shifting some of their production capacity to HBM and DDR5, etc., leading to an increase in value such as single-chip WAFER. Over time, the increase in value will spill over to small-capacity and niche storage products. In the second half of 2023, mainstream DRAM and NAND had significant price increases, spilling over to niche DRAM and SLC NAND. After 1-2 quarters of conduction, the price of niche DRAM has achieved a moderate increase in Q1 2024. Due to time lag, niche DRAM prices will continue to rise moderately in Q2 and Q3 in 2024. Demand for SLC NAND will pick up and prices rise about a quarter later than DRAM, and prices will rise moderately in the future. Among the company's own brand DRAM products, niche DDR3L products are one of the most widely used DRAM system solutions in the fields of network communication, television, set-top boxes, industry, smart homes, etc.; niche DDR4 products are ideal choices in many fields such as set-top boxes, televisions, network communications, smart homes, and automotive AV systems. In the future, as niche DRAM prices continue to rise, the company's gross margin of DRAM products is expected to increase moderately.
Changxin Technology plans to increase capital by 1.5 billion yuan to deepen cooperation and expand the future of storage
The company plans to use its own capital of RMB 1.5 billion to participate in the new round of financing for Changxin Technology.
After completing this capital increase, the company will hold about 1.88% of Changxin Technology's shares. Since 2021, the company has successively designed and launched various DDR4, DDR3 and other DRAM products. Fabless, which operates in an asset-light model, needs to be outsourced to a dedicated wafer foundry after completing the product design.
As an IDM company with scarce DRAM storage products in China, Changxin Technology is an important partner of the company in the DRAM business field. Based on the strategic partnership between the two parties, Changxin Technology opened up part of its production capacity to provide OEM services for the company's DRAM business. The company and Changxin Technology are developing DRAM product procurement and other services. As of March 28, 2024, the transaction volume has exceeded 180 million yuan. The company's current investment in Changxin Technology is conducive to deepening the strategic cooperative relationship between the two sides, leveraging industrial chain collaboration in terms of foundry production capacity and technical advantages, and continuing to deepen cooperation in the memory business field by strengthening coordination and linkage to achieve mutual benefit and win-win situation. After the completion of this round of financing, Changxin Technology will continue to promote the implementation of production capacity construction, increase DRAM market share, and further open up market space.
Profit forecasting
The company's revenue for 2024-2026 is 73.83, 90.97, and 10.737 billion yuan, respectively, and EPS is 1.49, 2.40, and 3.10 yuan respectively. The current stock price corresponds to PE of 55.8, 34.6, and 26.8 times, respectively. As a storage leader, the company is expected to continue to benefit as the storage market gradually recovers and prices rise moderately, and it is expected that it will continue to benefit and maintain a “buy” investment rating.
Risk warning
Macroeconomic risks, risk of product development falling short of expectations, risk of increased industry competition, risk of downstream demand falling short of expectations.