Incident: The company released the 2023 annual report and the 2024 first quarter report. The company's revenue for the full year of 2023 was 9.339 billion yuan, +12.77% year on year; net profit to mother was -0.36 million yuan, -103.40% year over year; after deducting non-net profit of 59 million yuan, -90.67% year over year. The company's Q1 revenue in 2024 was 2,465 billion yuan, +19.30% YoY, +1.01% month-on-month; net profit to mother -0.15 billion yuan, -107.15% YoY, -109.96% month-on-month; after deducting non-net profit of 133 million yuan, +17.27% YoY, reversing losses month-on-month.

Non-main businesses affected profit performance, and gross margin increased month-on-month in 24Q1: In 2023, the main reason for the increase in the company's revenue and the decline in profit was due to falling stock prices of Yuneng Technology and Anlu Technology among other non-current financial assets held by the company, leading to a decrease in fair value changes in earnings. In 2023, the company's gross margin was 22.21%, -7.24pcts year on year; the net profit margin was -0.69%, -13.34pcts year on year. The decline in gross margin was mainly due to falling prices of some of the company's products. In terms of expenses, the company's sales/management/R&D/finance expenses rates in 2023 were 1.79%/4.05%/9.25%/2.88%, respectively, and the year-on-year changes were +0.06/-0.50/+0.66/+0.36pcts, respectively. The main reason for the increase in R&D expenses was that the company increased its R&D investment in automotive-grade power modules and new energy power modules. In Q1 '24, shipments of products such as automotive-grade PIM power modules, IGBT devices, and SiC-MOS devices increased dramatically, and revenue maintained a relatively rapid growth trend.

In Q1 '24, the company's gross margin was 22.10%, up 3.18pcts month-on-month.

Technology continues to be upgraded and products continue to be released: In 2023, the company's discrete device product revenue increased 8.18% year-on-year, mainly due to the continuous upgrading of corresponding product technology and the continuous release of corresponding products, the company expects that the revenue of discrete device products will continue to grow rapidly in the future. In terms of products, the company's self-developed V-generation IGBT and FRD chip electric vehicle main motor drive modules have been mass-supplied to many domestic and foreign customers; IGBT devices (single tube) and MOSFET devices (single tube) for automobiles have been shipped in large quantities, and IGBT devices (finished products), inverter control modules, and SiC MOS devices used in photovoltaics have also been mass-shipped; IGBT and FRD chips used in automobile main drives have been sold in batches at many domestic and foreign module packaging plants, and in the process of further expanding customer and volume release ; The electric vehicle main motor drive module produced based on the second-generation SiC-MOSFET chip independently developed by the company has passed some customer tests, and mass production and delivery began in Q1 of '24. It is estimated that sales of silicon carbide PIM modules used in automobile main drives will reach 1 billion yuan throughout the year. On the technical side, by the end of '23, the company had completed the technical upgrade of V-generation IGBT and FRD chips, and the performance had improved markedly. They were applied to a new generation of cost reduction modules and high-performance modules, and sent to users for evaluation. The company has also completed the development of RC-IGBT products with multiple voltage platforms. This type of product has advanced performance indicators and will be promoted and used in the fields of automobile drivers, energy storage, wind power, and IPM modules in the future. The company has completed the development of the third-generation plane-gate SiC-MOSFET technology, and the performance indicators have reached the advanced level of similar device structures in the industry.

Promote the release of production capacity in multiple production lines and seize opportunities in the high-end market: the company focuses on high-end customers and high-threshold markets; it focuses on current opportunities for the rapid development of the automobile and new energy industries. To this end, the company is speeding up production capacity for automotive-grade IGBT chips, SiC-MOSFET chips, and automotive-grade power modules (PIM). It is expected that the company's revenue from finished IGBT devices and products such as chips and PIM modules (IGBT modules and SiC modules) will grow rapidly in the future. 1) The company is speeding up the construction of the “Silamine Gallium SiC Power Device Chip Production Line” project. Up to now, Silamine Gallium has developed a monthly production capacity of 6,000 6-inch SiC MOS chips, and is expected to produce 12,000 6-inch SiC MOS chips per month by the end of '24. 2) By the end of '23, Chengdu Silan Company had the packaging capacity to produce 200,000 automotive-grade power modules per month. In '24, Chengdu Silan will increase investment in production equipment to further expand its packaging capabilities for automotive-grade and industrial-grade power modules. 3) By the end of '23, Silanji Technology had a monthly production capacity of 25,000 IGBT chips. It had also made significant progress in the construction of an automotive-grade analog integrated circuit chip process platform, and several products had already entered trial production. In '24, Silanji Technology will accelerate the release of production capacity for automotive-grade IGBTs, MOSFETs, etc., and increase investment in the construction of automotive-grade analog integrated circuit chip process platforms to improve profit levels.

Lower the 24-year profit forecast, raise the 25-year profit forecast, and maintain the “gain” rating: We are optimistic that shipments of the company's products will continue to increase in high-threshold markets such as automobiles, new energy, industry, communications, and large-scale white electricity, and the company's operating profitability is expected to pick up further. Considering that the stock prices of Yuneng Technology and Anlu Technology fell among other illiquid financial assets held by the company, leading to changes in fair value, which had a significant negative impact on the company's profit side; costs increased after the merger of Silamine and Gallium; and the SiC chip business was still climbing in production capacity, so the 24-year profit forecast was lowered. However, at the same time, considering the continued release of the company's multi-line production capacity and continued product shipments, the 25-year profit forecast was raised. The company's net profit for 2024-2026 is estimated to be 3.09/5.22/715 million yuan, the corresponding EPS is 0.19/0.31/0.43 yuan, and the corresponding PE is 101/60/44 times.

Risk warning: Production capacity expansion falls short of expectations; customer development progress falls short of expectations; product development falls short of expectations; semiconductor prosperity falls short of expectations.