Benefiting from the storage industry's upward cycle, it is predicted that the median net profit for the 24Q2 quarter would be +1.6 times year-on-year.

The company forecast revenue for 24Q2 was 43.47 billion yuan to 4.747 billion yuan, with a median value of 4.547 billion yuan, +104.3% year-on-year; net profit to mother for 24Q2 was 1.36 to 0.226 billion yuan, with a median value of 0.181 billion yuan, a year-on-year increase of 1.6 times; after deducting non-net profit of 1.07 to 0.197 billion yuan, a median increase of 0.152 billion yuan, a year-on-year increase of 1.5 times.

The year-on-year increase in 24Q2 performance was mainly due to the company forecasting the upward cycle trend of the storage industry in advance and giving full play to its comprehensive advantages in various aspects such as scale, technology, sealing and testing, supply chain, products, and market brands.

Benefiting from rising storage prices+large customer volume, H1 embedded storage/solid state drive revenue may continue to grow.

By business: 1) The largest business is embedded storage, with revenue of 4.423 billion yuan in 23 years, accounting for 44%, and a gross profit margin of 3.11%. It is expected that 24H1 will benefit from the company's addition of major customers such as OPPO, compounding the rise in product prices in the upward cycle of the industry. It is expected that the second half of '24 will benefit from the release of new models from major mobile phone manufacturers and the increase in the penetration rate of AI phones, driving the growth in demand for storage capacity under the new wave of switching cycles.

2) The second largest business is solid-state drives, with revenue of 2.802 billion yuan in '23, accounting for 28%, and a gross profit margin of 5.46%.

It is expected that 24H1 will benefit from the expansion of enterprise-grade storage products combined with the dual drive brought about by the recovery of the credit innovation industry.

Enterprise-grade SSD+RDIMM achieved large-scale delivery and was recognized by customers, and self-developed master control chips enabled growth.

1) Enterprise-grade storage: The company's enterprise-grade SSD and RDIMM products have been delivered on a large scale to operators, financial, and internet clients since 23Q4 and have been recognized by customers.

2) Self-developed main control chips: Two self-developed main control chips (WM 6000 and WM 5000) have been shipped in batches, enabling the two core product lines of eMMC and SD cards, and tens of millions of large-scale products have been introduced.

The scale of 24H1's enterprise-level storage business has increased markedly, and the self-developed main control chip business has maintained an upward trend, further highlighting the “moat” and “booster” effects on its main business.

24H1 Yuancheng Suzhou+Zilia's revenue and profits all contributed positively, laying out an international and domestic dual-cycle supply chain.

In 2023, the company completed the merger and acquisition of Yuancheng Suzhou and Zillia. On the one hand, it built a resilient international and domestic dual-cycle supply chain system. On the other hand, the two holding subsidiaries mentioned above, 24H1, operated well, and both contributed to positive revenue and profit.

Global AIGC Wave+ “Digital China”, the leading storage space is vast and maintains a “gain” rating.

With the promotion of the global AIGC wave and the release of the “Digital China” top-level plan, the storage market has gained new momentum for growth. As a domestic storage module leader, the company is actively promoting the domestic and international two-wheel layout of the storage industry chain, with broad room for growth. The company's net profit from 2024 to 2026 is expected to be 1.311/2.107/3.092 billion yuan, respectively, corresponding to the 24/25/26 PE of 30/18/13 times, maintaining the “gain” rating.

Risk warning: macroeconomics fall short of expectations; wafer price fluctuations; international trade frictions; R&D falls short of expectations, etc.