Key points of investment:

LoongArch technology is the core, building autonomous and controllable instructions. Longcore Zhongke was founded in 2008. The company fully masters computer core technologies such as CPU instruction systems, processor IP cores, and operating systems for national informatization construction needs. It is the only domestic CPU company that builds an open information technology system independent of the Wintel (Windows+Intel) system and the AA (ARM+Android) system based on an autonomous instruction system.

Core highlights The #1：以高性价比在开放市场中取得竞争优势，实现重点突破2023 policy market can already see some positive trends. The addition of major Internet companies in the second phase of the national survey in 2024 marks the trend of industry expansion. 2024-2026 may be the year of Xinchuang. The company closely follows the pace of development of Xinchuang. The PC side penetrates the educational PC market, and talent and ecosystem construction go hand in hand; the server-side 5000 series market has performed well, and the 3C6000 has already been delivered, and the performance is greatly improved compared to the 3C5000.

The company's product iteration is progressing steadily, and it is expected to launch 7000 series chip products in 2025. Longxin's first GPGPU chip was designed and delivered in '23, and it is expected to focus on new growth points in the future.

The core focus is that #2：开放市场AI PC catalyzes new momentum. Open source Hongmeng once again conveys good news in the printer market. The company solved the Linux desktop driver problem, formed a local advantage in the Linux desktop ecosystem, and launched the 2P0500 SoC widely adapted to the main control system in 23Q4 to promote the healthy development of the country's ecology. In the PC market, the advent of AI PCs is expected to ignite a new wave of PC switching. The company's 3A6000 products have been recognized by the open market due to their performance advantages. On the Hongmeng side, the company has adapted to the Hongmeng system. Currently, there are new developments in open source Hongmeng. The No. 2 series is more compatible with the open source Hongmeng system.

According to the company's performance briefing, if any customer uses the 3A6000 as an industrial control scenario, there is no obstacle to adaptation.

Moreover, there are already OEM companies that want to support the company in launching the Longxin 3A6000+ Hongmeng desktop computer. The Russian market has also opened up new market demand for Longxin, and the “Belt and Road” space is broad.

The core focus is #3：自主掌握CPU core technology. The product's hard power builds the company's competitive advantage. The company relies on the “Tock+Tick” route to rapidly improve CPU single-core performance and gradually shorten the performance gap with mainstream international CPUs. The company's newly developed fourth-generation chip, the 3A6000, has more than 60% better performance than the 3A5000 single-core performance, and the cost performance ratio is more than double that of the 3A5000. The overall performance is comparable to Intel's 10th generation Core quad-core processor. At the same time, the company released 3C6000, SK3000, SoC2k0300, MCU1C203, SoC2p0300, etc. according to different market needs to gain competitive advantage in the open market with high cost performance and achieve key breakthroughs.

Profit forecasting and investment advice

We expect the company's revenue for 2024-2026 to be 0.759/1.055/ 1.379 billion yuan, corresponding to the current PS multiplier of 46/33/25X. As a scarce independent instruction set CPU design company in China, along with the gradual recovery of policy market space, the company is expected to gradually open up open up market space on the basis of consolidating the Xinchuang market and give it a “buy” rating for the first time.

Risk warning

Policy support falls short of anticipated risks, open market expansion falls short of anticipated risks, market competition risks, macro-environmental risks, and risks of intellectual property disputes.