Jiang Bolong's performance is in line with the market and our expectations

Jiang Bolong released the 2024 semi-annual report: 1H24 revenue 9.039 billion yuan, YoY +144%, net profit to mother 0.594 billion yuan, YoY transfer profit, +1.19 billion yuan, corresponding 2Q24 revenue 4.586 billion yuan, QoQ +2.99%, YoY +106.05%, net profit to mother 0.21 billion yuan, QoQ -45.41%, YoY turned profit, +0.525 billion yuan. In line with previous performance forecasts, in line with the market and our expectations.

Development trends

Consumer electronic memory may enter the compatible phase. The company's revenue grew rapidly year-on-year in the first half of the year and the second quarter. The sharp increase in gross margin was mainly due to the current global semiconductor storage upward cycle, while the same period last year was a downward cycle. However, we have also seen that the price increase of memory products in the consumer electronics sector has narrowed. Some downstream consumer electronics customers are less willing to accept price increases. We judge that subsequent consumer electronics memory products may enter a compatible stage. We see that the company's 2Q24 revenue growth rate has narrowed month-on-month, and the gross margin of the cost-side wafer price increase has also declined by 1.74ppt to 22.65% over the past period. We expect the subsequent growth curve of the company's ToB consumer electronic memory to enter a bottleneck period.

The company is still in a period of high investment in sales and R&D. The rapid growth on the revenue side has led to an optimal trend of various expense rates. The share of the above three fees in a single quarter/ semi-year all decreased by about 2 to 3 ppt compared to the same period last year. However, considering that the company still had large equity payments, sales promotion, and R&D investment in the next few quarters, we believe that the company's short-term expense ratio was optimized or not significant. Considering the narrowing in memory price increases, based on prudence, the company calculated an inventory impairment reserve of 0.155 billion yuan in the second quarter, and a total of 0.206 billion yuan of inventory impairment reserves in the first half of the year.

Businesses such as Lexar To C high-end products, enterprise-grade “ESSD+RDIMM” products, and automotive-grade storage products are expected to bring the company a second growth curve. 1H24 Lexar's revenue is 1.63 billion yuan, YoY +70.55%; 1H24's enterprise storage revenue is 0.291 billion yuan, an increase of more than 20 times; automotive-grade storage has covered more than 20 Tier 1 manufacturers. In addition, the company's two self-developed master control chips have been used in more than 10 million products. We believe that with the company's self-developed master control chips and niche storage particles such as 2D NAND and NorFlash, it is expected to further enable the company's product market development.

Profit forecasting and valuation

We keep the company's revenue forecast unchanged. We expect the company's 2024/2025 revenue to increase 73.0%/28.5% year-on-year to 17.512/22.506 billion yuan. Considering the decline in gross margin caused by cost-side price increases, the company's 2024/2025 net profit to mother was lowered by 43%/50% to 0.976/1.2 billion yuan. Currently, the company's stock price corresponds to 29.9x/24.4x P/E in 2024/2025. Taking into account the reduction in profit forecasts and the company's second growth curve, the company's target price was lowered by 19% to 80 yuan, corresponding to 34x/28xP/E in 2024/2025, with 9% upside. Short-term company profits may have marginal downside risks, but considering the starting point of the company's medium- to long-term second growth curve, the company's rating of outperforming the industry remains unchanged.

risks

Price increase/demand falls short of expectations/increased market competition/progress of new products falls short of expectations/trade frictions/exchange rate risk.