Shannon Xinchuang released its 2024 semi-annual report. The company achieved revenue of 7.81 billion yuan in 2024H1, +80.2% year-on-year, net profit of 0.156 billion yuan, -11.4% year-on-year, net profit after deducting 0.22 billion yuan, and +210.2% year-on-year. The decline in the company's net profit to mother was mainly due to non-recurring profit and loss of -0.06 billion yuan, a year-on-year decrease of about 0.17 billion yuan. The 24H1 securities market fluctuated greatly, and the fair value of shares held by the company and subsidiaries decreased. Looking at a single quarter, the company achieved revenue of 5.5 billion yuan in 24Q2, +99.1% year-on-month, and achieved net profit of 0.142 billion yuan, +56.1% year-on-year, +908.9% month-on-month, net non-return net profit of 0.165 billion yuan, +216.2% year-on-year and +202.0% month-on-month. The company's performance growth mainly benefited from industry recovery, rising memory chip prices, and increased demand for memory chips from downstream customers.
Storage prices continue to rise, and rising shipping structures drive profit optimization. The company's 24H1 gross profit margin was 5.9%, +1.4pcts year over year, 6.2% gross margin for 24Q2, +2.6 pcts year over year, and +0.9 pcts month over month. Looking at the price side, storage prices are rising overall, with 24Q2 SK DRAM ASP +15%-17% month-on-month, and NAND ASP +17%-20% month-on-month. TrendForce estimates that the price increase for conventional DRAM contracts in the third quarter will be higher than previously anticipated. In terms of structure, DDR4 accounts for a larger share of Shannon's revenue in 2023. It is expected that the share of DDR5 will increase significantly in 2024, and the company will benefit from the increase in DDR5 penetration. Higher storage prices+higher share of high-end products drive the company's profit optimization.
Haip Storage's enterprise-grade DDR4, DDR5, and Gen4 eSDs are progressing smoothly and are actively promoting domestic replacement.
Shannon Xinchuang and Shenzhen Dapuwei and other companies jointly established Haipu Storage, of which Shannon Xinchuang holds 35% of the shares. At present, Haipu Storage has completed R&D and trial production of enterprise-level DDR4, DDR5, and Gen4 eSDs. The product has excellent performance and is used in cloud computing storage (data center servers) and other fields. It has completed the certification and adaptation of some major domestic server platforms, and has officially entered the product mass production stage. Hyper Storage has achieved sales revenue in 2023, and the revenue targets for the storage module's 2024-2026 equity incentives are 0.2, 0.4, and 0.8 billion yuan, respectively. We believe that Hypu Storage's self-development is progressing smoothly. Combined with the company's main distribution business advantages, it is expected to further promote domestic replacement of enterprise-grade storage in the future.
The original proxy line has significant advantages, and computing power and memory go hand in hand. In 2023, the company's semiconductor distribution business accounted for more than 95% of total revenue. The main distribution products were SK Hynix's enterprise-grade storage products and MediaTek (MTK) master control chips. Among them, SK Hynix accounted for about 60% and MTK accounted for about 35%. In May '24, Co-Chuangtai received an AMD dealer confirmation letter. The company now has the ability to provide electronic component products such as data memories, control chips, modules, etc., and the products are widely used in various fields. We believe that based on the original enterprise-level storage business, the company provides in-depth coverage around customer needs, and is expected to provide customers with key computational power+memory solutions in the rapidly developing field of AI and high-performance computing.
Shannon Xinchuang disclosed the “Notice Concerning Adjustments to Daily Sex-related Transactions Expected in 2024”. After the adjustment, the company expects transactions with related parties Wuxi Xinheng, Wuxi Xinyang and Wuxi Xinlian to not exceed 1.55 billion US dollars (tax included) in 2024. The previous value was 0.62 billion US dollars. Among them, the related party, Wuxi Xinlian, added additional counterparties after this adjustment. Looking at the shareholding structure, Wuxi Gaofa Investment and Development Group holds 40% of the shares in Wuxi Xinheng, Wuxi Xinyang, and Wuxi Xinlian. Wuxi Gaofa Investment is the controlling shareholder of the Wuxi High-tech Zone New Kinetic Energy Industry Development Fund, which is a shareholder of more than 5% of the shares of Shannon Chip Venture. The increase in the amount of related transactions also shows the company's confidence in the future development of related businesses.
Profit forecast and investment advice: We expect Shannon Xinchuang to achieve revenue of 18.6/23.89/28.72 billion yuan in 2024-2026, +64.99%/+28.51%/+20.21% year-on-year, and achieve net profit of 0.65/0.91/1.14 billion yuan respectively, +72.53%/+40.00%/+25.23% YoY, maintaining a “Highly Recommended” rating.
Risk warning: Risk of gross margin fluctuation due to price fluctuations of IC products such as memory, risk of supplier dependency, risk of international trade disputes.