The company released its 2024 semi-annual report. Benefiting from factors such as restorative growth in demand for memory interfaces and module supporting chips, increased DDR5 downstream penetration rate, and new product launches, the company achieved a high profit increase in 24H1. Maintain a buy rating.

Key points to support ratings

The recovery in industry demand was compounded by the increase in new products, and business performance grew significantly. The company's 24H1 achieved revenue of 1.665 billion yuan, an increase of 79.49%. Among them, the sales revenue of the interconnect chip product line was about 1.528 billion yuan, and the sales revenue of the Jinjue server platform product line was about 0.13 billion yuan; it realized a net profit of 0.593 billion yuan, an increase of 624.63%, and achieved net profit without deduction of 0.544 billion yuan to mother, an increase of 14177.86%. Looking at a single quarter, the company achieved revenue of 0.928 billion yuan in 24Q2, an increase of 82.59%, an increase of 25.83%, and achieved net profit due to mother of 0.37 billion yuan, an increase of 4.95 times, and a 65.50% increase. Net profit without return to mother was 0.325 billion yuan, an increase of 91.33 times, and an increase of 47.81%.

It set a record high for the company's net profit deducted from non-return to mother in a single quarter.

Data center recovery has led to increased resilience in memory interfaces and module supporting chips, and DDR5 penetration continues to evolve.

As DDR5 downstream penetration rate increases and DDR5 child generation iteration continues to advance, 24H1's DDR5 second-generation RCD chip shipments have surpassed first-generation RCD chips and third-generation RCD chip shipments on a 24H2 scale, and it is expected that 24Q3 DDR5 memory interface chips will surpass DDR4. Looking at Taiwan Stock Exchange's monthly revenue, the industry's recovery continues. Xinhua 24H1 achieved revenue of NT$2.37 billion, an increase of 75.59%, and achieved revenue of NT$0.601 billion in July, an increase of 159.45%, and an increase of 19.09%. According to Jibang Consulting, based on the introduction of a new server platform, both OEMs and CSPs have shown good procurement momentum. The momentum will continue into the third quarter, and it is estimated that the third quarter will increase by about 4-5%. DRAM bit shipments will be better than originally anticipated, and the DDR5 share will rise to 60% in the third quarter.

New products on both the “end” and “cloud” sides continue to gain strength, seizing the high ground of AI to protect the long-term. Benefiting from the wave of the AI industry, the company's three new high-performance “capacity” chip products showed a rapid growth trend. The total sales revenue for 24Q2 was about 0.13 billion yuan, which was a significant increase over the previous month. 1) PCIe Retimer: Benefiting from strong global AI server demand and the company's market share, the company's PCIe Retimer chip shipments grew rapidly. Following the 24Q1 shipment of about 0.15 million pieces, 24Q2 shipped about 0.3 million pieces. The number of PCIe Retimer chip orders delivered in 24Q3 is expected to be around 0.6 million, a further significant increase over the previous month. 2) MRCD/MDB: Benefiting from the demand for higher bandwidth memory modules driven by AI and high-performance computing, server high-bandwidth memory modules with Lanqi's MRCD/MDB chips began to be tested on a large scale by mainstream cloud computing/Internet vendors at home and abroad. The company's MRCD/MDB chip sales revenue grew rapidly, and 24Q2 revenue exceeded 50 million yuan. 3) CKD:

The company took the lead in trial production of CKD chips in the industry in April '24. Benefiting from the promotion of AI PC industry trends, and the upcoming release time of the new client CPU platform (supporting 6400MT/S), 24Q2 began large-scale shipments of CKD chips, and sales revenue in a single quarter exceeded 10 million yuan for the first time.

valuations

Considering the recovery in storage and data center demand and increasing demand for connected products in the AI era, the company is expected to be driven by multi-dimensional growth. We expect the company to achieve revenue of 4.354/6.202/7.777 billion yuan in 2024/2025/2026, and realized net profit of 1.477/2.288/2.851 billion yuan, EPS 1.29/2.00/2.50 yuan respectively, corresponding to 2024-2026 PE 41.1/26.5/ 21.3 times Maintain a buy rating.

The main risks faced by ratings

The recovery of the storage market falls short of expectations, the rate of increase in DDR5 penetration is slowing down, new product development falls short of expectations, and the international environment is unstable.