Deep cultivation of niche storage, characteristic processes and strong design capabilities create product competitiveness. Established in 2016, Pran Co., Ltd. is a well-known domestic supplier of memory and MCU chips. The company's products include two major lines of storage and “storage +”, which can be divided into four categories: NOR Flash, EEPROM, microcontroller chips and analog products. The company's NOR Flash and MCU products are all based on the SONOS underlying process and have obvious cost and performance advantages. The company's products can be widely used in the Internet of Things, smartphones and peripherals, wearables, servers, industrial control, automotive electronics, security, etc., and its customers cover brands such as Samsung, OPPO, Vivo, Xiaomi, Lenovo, HP, Midea, and automobile customers at home and abroad.

Niche storage is gradually entering an upward cycle, and the company is expected to fully benefit. Since 2021Q4, niche storage has entered a downward cycle as the semiconductor industry removed inventory. The 2024Q1 industry bottomed out, 2024Q2 began a gradual upward trend in the niche storage cycle, and product prices continued to recover. Pran Co., Ltd. actively gained market share in the last round of industry downturn, achieving five consecutive quarters of month-on-month revenue growth in 2023Q1-2024Q1. In the future, as the industry enters an upward cycle, Pran shares are expected to fully benefit from the growth elasticity brought about by share.

Business model reuse promotes MCU business expansion, and core strengths help the company seize opportunities in emerging markets.

Relying on the product advantages brought by the SONOS process and its strong sales ability and market sense, Pran Co., Ltd. has achieved rapid growth in the NOR Flash business. In the new semiconductor cycle, Pran Co., Ltd. expanded the product advantages of the SONOS process to the MCU field, fully grasped the opportunities in emerging markets, and achieved rapid growth in related products. We believe that in the future, the company's MCU business is expected to expand smoothly using the NOR Flash business model, and the company is also expected to fully benefit from emerging consumer market opportunities with its deep understanding of the consumer sector and market sense.

Profit forecast: We expect the company's revenue for 2024-2026 to be 1.804/2.233/2.677 billion yuan, up 60.1%/23.8%/19.9% year on year, and net profit to mother of 0.252/0.313/0.387 billion yuan respectively, up 622.3%/24.3%/23.6% year on year, corresponding PE is 39/31/25 times. First coverage, giving a “buy” rating.

Risk warning: 1) R&D project progress falls short of expectations; 2) new product introduction progress falls short of expectations; 3) industry recovery falls short of expectations, etc.