Ping An's point of view:

A leading interconnect chip company, and the AI wave is helping new growth. The company is one of the world's major suppliers of interconnect chips. The product line includes memory interface chips, capacity chips, and precision server platforms, which can provide a complete DDR2-DDR5 memory buffering/half-buffering solution. In recent years, the company's revenue volume has fluctuated with downstream demand, and profitability has remained at a high level: in 2019-2022, the company's revenue grew from 1.738 billion yuan to a phased peak of 3.672 billion yuan, a slight decline in 2023 (2.286 billion yuan), and 2024Q1 increased sharply year over year. The main reason for revenue fluctuations was changes in downstream demand; in addition, the company's net interest rate remained above 30% for many years (excluding 2023), and the gross profit margin of core business interconnect chips At over 58%, profitability has been at a high level for many years. In the future, as DDR5 penetration increases and capacity chips are scaled up, the company's performance is expected to continue to grow steadily.

The memory interface chip is the company's basic disk, and DDR5 penetration helps the new take off. A memory interface chip is the core logic device of a server memory module. It is a necessary channel for the CPU to access memory data. It is mainly divided into two categories: RCD and DB according to function. Memory interface chips can be viewed as the company's basic disk and are the company's main source of revenue. The company invented the “1+9” distributed memory subsystem architecture in the DDR4 generation, which solved the contradiction between the large capacity and high speed of the memory subsystem, and became the standard design for DDR4 LRDIMM, and since then it has gradually become an industry leader; entering the DDR5 generation, the “1+9” framework evolved into a “1+10” architecture, which continues to be the international standard for LRDIMM, and the company's dominant position in the industry has been further consolidated. Currently, the penetration rate of DDR5 is rapidly increasing, the company's related memory interface chip categories are richer (SPD, TS, PMIC), and the value has increased. It is expected to help the company's basic memory interface chip board gain new growth vitality in the future.

AI has brought about a new revolution in computing power, and power chips have contributed to new growth poles. The rapid development of AI has brought huge demand for computing power and memory. High-speed and stable transmission of data between high-computing power processors and high-capacity memory is essential, and capacity chips have emerged. The company has a perfect layout in the field of power chips, and the product categories include PCIe Retimer, MRCD/MDB, CKD, MXC, etc. PCIe Retimer mainly solves problems such as high data speed, uneven signal timing and poor integrity during long-distance transmission. The company's corresponding products have been shipped on a large scale. The 24Q1 single quarter shipment volume is about 0.15 million units, and the 24Q2 shipment volume is about 0.3 million units, and the growth trend is strong; MRCD/MDB is the core logic device for high-bandwidth MRDIMM, and the function is similar to RCD/DB. The market size will expand as MRDIMM penetration increases, and the company has completed the first generation of MRCD/MDB. Research and development, sales in 24Q2 exceeded 50 million yuan in a single quarter; CKD's application scenario is AIPC when the transmission rate reaches 6,400 MT/s. In April 2024, the company took the lead in trial production of CKD chips, and large-scale shipments of the 2024Q2 began. Subsequently, with the launch of CPU platforms supporting DDR5-6400 memory modules, CKD is expected to gradually expand. In summary, the AI wave has brought a large demand for capacity chips. The company has a perfect layout and leadership in this field, and is expected to become a new growth point in the future.

Obsessed: A secure and reliable server platform. The company's Jinjue server platform mainly includes two parts: the Jinjue CPU and the hybrid secure memory module. The Jinjue CPU is an x86 server CPU developed by the company based on the Intel core for the local market, and the hybrid secure memory module can provide a safe and reliable memory solution for the server platform. At present, many server manufacturers have used products related to the Jinjue server platform to develop a series of high-performance server models with unique security functions, which are widely used in government affairs, transportation, etc., and high-tech enterprises.

Investment advice: The company is a leading global interconnect chip company. The basic board is a memory interface chip. As the DDR5 penetration rate gradually increases, it is expected to stimulate the growth vitality of the company's product line. Furthermore, AI is gradually being implemented, and high computing power and large storage power bring new demand for high-speed and stable transmission of data. For this reason, the company has perfected the layout for capacity chips, leading the industry in various products, and is expected to become a new growth point for the company in the AI era. We expect the company's EPS to be 1.25 yuan, 1.88 yuan, and 2.53 yuan respectively in 2024-2026. The PE corresponding to the closing price on August 22, 2024 is 43.4X, 28.8X, and 21.4X, respectively. The company has advanced technical level, strong product competitiveness, DDR5 penetration, and the AI wave are expected to drive steady growth in the company's performance, cover for the first time, and give a “recommended” rating.

Risk warning: 1. The risk of technological product iterations falling short of expectations. Integrated circuit technology iterates rapidly. If the company's product iteration fails to keep up with the pace of upgrading core devices such as memory and CPU, it may cause the company's future growth to be weak. 2. The risk that downstream demand falls short of expectations. The company's products are mainly used in servers. Weak server market demand, slow DDR5 penetration, or delays in AI implementation may adversely affect the company. 3. Risks of industrial ecological cooperation. The company specializes in interconnect chips and is highly dependent on the industrial chain ecology. If the degree of cooperation with upstream and downstream partners is not close enough, it may affect the launch and release of the company's new products.