Shannon Xinchuang announced its 2024 semi-annual results forecast. The company expects 2024H1 to achieve net profit of 0.152-0.228 billion yuan, yoy -13.9% ~ +29.1%, median value of 0.19 billion yuan, yoy +7.6%. Net profit after deducting non-return to mother in the first half of the year was 0.215-0.291 billion yuan, yoy +204.5% ~ 312.2%, median value of 0.253 billion yuan, yoy +258.4%. The company expects to achieve net profit of 0.138-0.214 billion yuan in the 24Q2 single quarter, yoy +51.3% to 134.7%, median value of 0.176 billion yuan, yoy +93.0%. 24Q2 net profit without return to mother was 0.161-0.237 billion yuan, yoy +208.5% ~ 354.6%, median value of 0.199 billion yuan, yoy +281.5%. Non-recurring profit and loss is mainly due to large fluctuations in the securities market in the first half of 2024. The fair value of shares held by the company and subsidiaries decreased. Non-recurring profit and loss was about -63 million yuan, a year-on-year decrease of about 0.17 billion yuan. In addition, benefiting from industry recovery, rising memory chip prices, and increased demand for memory chips from downstream customers, the company expects revenue growth of about 80% in 2024H1, corresponding revenue of about 7.8 billion yuan, 24Q2 revenue of 5.5 billion yuan, yoy +98.8%, and QoQ +138.7%.

We believe that on the one hand, the rapid growth in the company's operating performance is due to the expansion of revenue scale. On the other hand, the company's business structure continues to be optimized, and the share of high-end products has increased. The company's 2023H1 net interest rate after deducting non-return mother is 1.6%, 2024H1 is 3.2%, and the profit level has increased significantly.

The market space for enterprise-grade SSDs is vast, and Hyper Storage is driving the domestic replacement process. According to iResearch, China's enterprise-grade SSD market will grow from 28.5 billion yuan in 2022 to 66.9 billion yuan in 2026, with a CAGR of 23.7%, of which PCIESSD's share will increase from 68% in 2022 to 89% in 2026.

Shannon Xinchuang 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. The company has established R&D and production bases in Shenzhen and Wuxi, and has launched enterprise-grade PCIE4.0NVMESD and RDIMM products based on domestic master control chips.

AMD dealers are once again in the next city, where computing power and memory go hand in hand. At the end of May 2024, Shannon announced that its wholly-owned subsidiary Co-Chuangtai had received an AMD dealer confirmation letter. Currently, the company's main revenue comes from semiconductor distribution business. The main distribution products include enterprise-grade storage products such as DRAM and NAND, as well as consumer electronics master control chips. The enterprise storage products distributed by the company are used in servers in data center construction and other fields. We believe that Co-Chuangtai's receipt of an AMD dealer confirmation letter will help the company explore customer needs in depth on the basis of the original enterprise-level storage business, and is expected to provide customers with key computational power+memory solutions in the rapidly developing field of AI and high-performance computing.

Profit forecast and investment advice: We expect Shannon Xinchuang to achieve revenue of 18.6/23.89/28.72 billion yuan in 2024-2026, +64.99%/+28.51%/+20.21% year-on-year, and achieve net profit of 0.65/0.91/1.14 billion yuan respectively, +72.53%/+39.84%/+25.25% year-on-year, maintaining a “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.