Incident: The company released its 2023 annual report and 2024 quarterly report. In 2023, the company achieved revenue of 703 million yuan, a year-on-year decrease of 28.25%; realized net profit of 100 million yuan, a year-on-year decrease of 71.63%; and realized deduction of 88 million yuan in non-net profit, a year-on-year decrease of 77.52%. In 2024, Q1 achieved revenue of 247 million yuan, up 72.49% year on year and 22.52% month on month; realized net profit of 51 million yuan, up 138.05% year on year, up 184.76% month on month; realized deducted non-net profit of 66 million yuan, up 293.40% year on year, up 206.91% month on month.

The 23-year results were under year-on-year pressure, and the Q1 performance in 2023 was rapidly growing: The company's performance in 2023 was mainly affected by factors such as weak demand in the PC and server market, as well as procurement and inventory strategy adjustments by downstream memory module manufacturers. The sales volume and revenue of the company's SPD products supporting DDR5 memory modules declined sharply. In 2024, the company achieved rapid year-on-year growth in Q1, mainly 1.

Benefiting from the recovery in demand in the downstream application market, the sales revenue of the company's industrial-grade EEPROM products and voice coil motor drive chip products grew rapidly year on year; 2. Sales revenue of the company's SPD products, NOR Flash products, and automotive-grade EEPROM products grew rapidly year on year. In Q1 2024, the company's gross margin was 54.62%, up 7.11 pcts year on year, up 7.02 pcts month on month; net margin was 20.24%, up 7.73 pcts year on year, up 13.28 pcts month on month; the company's profitability further improved. Expense side:

The 2024 Q1 sales/management/ R&D/ finance expense ratios were 5.47%/5.01%/15.77%/-1.44%, respectively, with year-on-year changes of -0.18/-1.84/-8.34/ -2.48pcts, respectively. The company's expenses rate decreased year-on-year during the period, mainly due to the rapid increase in the company's revenue.

Laying out industrial and automotive-grade EEPROM products, NOR Flash products continue to be released: The company's industrial-grade EEPROM products now cover many application fields such as smartphone camera modules, LCD panels, industrial control, communication, Bluetooth modules, computers and peripherals, medical instruments, white goods, etc., and have occupied a leading position in application segments such as smartphone camera modules and LCD panels, and have gained a high market share. With the continuous development of the trend of automobile electrification, intelligence, and connectivity, the penetration rate of automotive electronic products is rapidly increasing. The company is actively improving the technology accumulation and product layout of A0 grade automotive-grade EEPROM, and further developing automotive-grade EEPROM products that meet various levels of ISO 26262 functional safety standards. At present, the company has a full range of automotive-grade EEPROM products of grade A1 and below. The products are widely used in dozens of sub-modules of four major automotive systems, including smart cockpits, three-electric systems, visual perception, chassis transmission and micromotors. End customers include many mainstream domestic and foreign automobile manufacturers. The company has developed a series of NorFlash products with independent intellectual property rights based on the NORD process platform, and has achieved batch supply to application markets and customer groups such as TWS Bluetooth headsets, PLC components, and AMOLED mobile phone screens. The cumulative shipment volume of products has exceeded 100 million units. The company has successfully delivered a new generation of 1.2V/1.8V logic level adaptive mid-loop voice coil motor driver chips in batches, and closed-loop voice coil motor driver chip products have also been applied in small batches by customers. In Q1 2024, the company shipped more than 56 million units of NorFlash products. Single quarter sales accounted for nearly 70% of total sales in 2023, and the company's market share and brand influence continued to increase.

The storage market is gradually recovering, and the increase in DDR5 penetration rate is driving SPD sales growth: According to TrendForce Jibang Consulting's estimates, the quarterly increase in DRAM contract prices in the second quarter will be revised to 13-18%; the NAND Flash contract price increase will be revised to about 15 to 20% at the same time, and the price increase for all products in the eMC/UFS line was small, about 10%. We believe that the storage market as a whole is in a phase of gradual recovery. As one of the few companies in the industry with a complete SPD product portfolio and technical reserves, the company has developed and sold a series of SPD products supporting DDR2/3/4 memory modules since the DDR2 generation. For the latest DDR5 memory technology, the company cooperated with Lanqi Technology to develop SPD products supporting next-generation DDR5 memory modules (mainly including UDIMM, SODIMM, RDIMM, LRDIMM). The product has a built-in 8Kb SPD EEPROM to store information about the memory module and all configuration parameters of the memory particles and related devices on the module, and integrates an I2C/I3C bus hub (hub) and a high-precision temperature sensor (TS), which are essential components of DDR5 memory modules. It is also a critical component of memory management systems. With the gradual improvement in the inventory level of downstream memory module manufacturers and the continuous increase in the penetration rate of DDR5 memory modules, the company's SPD product sales and revenue achieved significant month-on-month growth in Q4 of 2023, especially since December, and there is a clear trend of recovery in related business; in Q1 2024, sales of the company's SPD products achieved a significant year-on-year increase.

Lower profit forecasts and maintain a “buy” rating: As the performance and technical level of commercial and automotive-grade DDR5 memory technology is gradually recognized by clients, the company's performance has long-term growth momentum. At present, the company and Lanqi Technology have taken the first-mover advantage in the DDR5 SPD field and achieved a leading position in related market segments. Affected by weak downstream demand, the company's 2023 performance fell short of expectations. We lowered our profit forecast. The company's net profit for 2024-2026 is expected to be 340 million yuan, 465 million yuan, and 645 million yuan respectively, and EPS is 2.14 yuan, 2.93 yuan, and 4.07 yuan respectively. The corresponding PE is 27X, 20X, and 14X, respectively.

Risk warning: Production capacity release falls short of expectations, risk of market demand fluctuations, risk of price fluctuations of important raw materials, risk of market competition.