Incident Overview
On August 30, Guilun Electronics released its 2024 semi-annual report. In the first half of 2024, the company achieved operating income of 0.196 billion yuan, a year-on-year decrease of 28.66%; net profit due to mother -0.041 billion yuan, after deducting non-return net profit of -0.019 billion yuan.
Design EDA increased 90.5% year over year, maintaining high investment in R&D
On the revenue side, 2024H1 achieved revenue of 0.196 billion yuan (yoy +28.7%). The EDA software business grew rapidly, achieving revenue of 0.136 billion yuan (yoy +46.6%). Among them, manufacturing EDA increased 9.54% year over year and resumed growth; design EDA increased 90.5% year over year, showing impressive performance. We believe that the increase in design EDA comes from the large-scale introduction of software launched by a series of companies such as NanoDesigner and Standard Unit Library Software in recent years on the customer side. In addition, the company's semiconductor device characteristic testing systems and technology development solutions business also contributed to significant performance increases, achieving revenue of 0.042 billion yuan (yoy -9.8%) and 0.17 billion yuan (yoy +42.7%), respectively.
On the profit side, due to high R&D investment, 2024H1's net profit to mother was -0.041 billion yuan. Specifically, the number of R&D personnel in the company increased from 268 in 2023H1 to 381 in 2024H1, and reached 76% with a master's degree or above, increasing the R&D expenses rate to 63.59%, an increase of 4 pcts compared to 2023H1. From a global perspective, EDA is a highly talented and technology-intensive industry. The R&D cost rate of leading overseas companies such as Synopsys and Cadence has remained in the 30%-40% range for a long time, while domestic EDA companies as a whole, including companies, are still in the catch-up stage and require higher R&D investment intensity, so we expect the company's R&D cost rate to remain at a high level.
The high increase in domestic revenue is expected to benefit from strong demand from HBM
By region, benefiting from strong demand for domestic substitution, the company's domestic business growth rate was significantly higher than that of overseas. 2024H1's domestic revenue rose 0.133 billion yuan (yoy +43.99%), accounting for 67.86%. We believe the dividends from replacement demand are expected to continue for a long time. At the same time, on the supply side, in addition to endogenous R&D, the company has successively acquired Fuzhou Xinzhilian and Belgian EDA company Magwel. The former has a leading position in board-level and package-level design design, while the latter's two core tools, ESD design verification and power device design analysis PTM, have been used by leading global analog and power semiconductor manufacturers for many years. We believe that as the product matrix becomes richer, the company is continuing to open up accessible market space. In addition, some of the company's design EDA tools can also support customers' R&D work related to the HBM process, which is expected to benefit from strong downstream demand.
Investment advice:
The company is an EDA company with few domestic products with global competitiveness. Currently, it is fully benefiting from the development of the domestic semiconductor industry and autonomous and controllable opportunities. At the same time, it is gradually expanding from manufacturing EDA to full-process design EDA through endogenous R&D, epitaxial acquisitions, and ecological construction. We expect the company's revenue for 2024-2026 to be 0.421/0.539/0.69 billion yuan, respectively, and net profit to mother of -0.045/0.022/0.105 billion yuan, respectively. Maintaining a buy-A investment rating, the target price for 6 months is 19.40 yuan, which is equivalent to 20 times the dynamic market sales rate in 2024.
Risk warning: 1) Risk of new product development falling short of expectations; 2) risk in overseas markets; 3) risk of falling short of expectations in downstream market demand; 4) risk of not being able to find targets for acquisition or strategic investment; 5) risk of loss of technical personnel.