Key points of investment

Incident: On July 25, 2024, Longxin Zhongke issued an announcement disclosing the latest progress of the 3A6000. The company's 3C6000 sample recently completed basic functional tests and preliminary performance tests, and generally met the design expectations.

3C6000 has passed preliminary functional & performance tests, and domestic replacement is accelerated. The Dragonchip 3C6000 is a new generation of Longchip server processor chips. It uses the Dragoncore autonomous command system “Dragon Architecture”. It is designed based on the Dragoncore fourth-generation processor core microarchitecture. A single silicon chip integrates 16 LA664 processor cores, supports simultaneous multi-threading technology, and can support a single-chip multi-chip interconnect to form 32 or more core chip versions through Dragonchain technology, and expand multi-chip interconnect to support multi-channel server solutions. The performance of the 3C6000 in the server field will reach the level of mainstream server CPUs in the market, and can provide cost-effective server solutions for different application fields to help the company transform.

We believe that in the current context of increased trade barriers and geopolitical risks, developing an autonomous CPU and building an autonomous and controllable information technology system is a national need and the need of the times. The company's 3C6000 sample passed the test, which not only demonstrated the company's outstanding R&D strength, but also made a positive contribution to China's “autonomous and controllable” information technology system. The company is expected to benefit from domestic substitution trends, and product volumes can be expected.

Desktop CPUs and GPUs are progressing simultaneously, actively creating a “trinity” solution. The company launched the desktop CPU 3A6000 in 2023, with a main frequency of 2.5 GHz. It integrates 4 newly developed high-performance LA664 processor cores. The overall performance of the product is comparable to Intel's 10th generation Core quad-core processor. According to the latest national safety and reliability assessment results, the Longxin 3A6000 entered the highest safety and reliability level II list, which is expected to benefit from a new round of localization of Xinchuang.

On the GPU side, the company plans to release the 2K3000 in the near future. Longxin's second-generation GPU core LG200 will be used in the 2K3000 to support graphics acceleration, scientific computing acceleration, and AI acceleration. The 9A1000, the first standalone video card and AI accelerator chip, is also scheduled to be released in 24Q4 to target AMD RX 550 graphics cards to support scientific computing acceleration and AI acceleration. Furthermore, the company plans to develop a dedicated GPGPU chip this year.

As the company completes the development of the “Three Musketeers” of general-purpose CPUs such as the 3A6000, 3C6000, and 2K3000, the company will shift the main conflict of development from product development to marketing sales, and product recognition and competitiveness are expected to continue to improve.

Open up the market by using “dots” as “faces”. The company adheres to the “two-legged” approach of policy markets and open markets, and opens up the market through motor drives, printer chips and server layouts. In 2023, the company delivered a dedicated MCU for 1C203 motors and launched the first printer controller SoC 2P0500.

With the gradual breakthrough of various “points”, Longxin is expected to transform the advantages of autonomy into cost performance and software ecosystem advantages, increase the share of open market revenue, and gradually reduce dependence on policy markets.

Investment advice: We forecast the company's revenue for 2024-2026 to be 0.76/1.12/1.45 billion yuan, and net profit to mother - 0.05/0.06/0.14 billion yuan, respectively. The company is actively building a “trinity” solution, and will shift its focus to market and sales in the future, benefiting from domestic substitution trends. The company's desktop CPUs and server CPUs are expected to increase rapidly in the future and maintain a “buy” rating.

Risk warning: Product verification progress falls short of expectations, downstream market demand falls short of expectations, technology iteration falls short of expectations