Key points:

The company announced the 2024 restricted stock incentive plan (draft) to stimulate the motivation of the company's employees. The incentive plan is to grant 4.541 million restricted shares to the incentive target, accounting for 0.40% of the company's total share capital of 1142.53771 million shares when the draft incentive plan was announced; for the first time, 3.6328 million shares were awarded, which represents 80% of the total equity granted. The grant price (including reserves) of restricted shares under this incentive plan is 26.60 yuan/share; the total number of incentive recipients is 289, accounting for about 38.90% of the total number of employees in the company on June 30, 2024. Performance assessment target: If restricted shares of this incentive plan are awarded in 2024, the 2024/2025/2026 company performance assessment targets are the company's gross profit of 1.9 billion yuan/2.1 billion yuan/2.3 billion yuan, respectively, and the assessment trigger values are 1.7 billion yuan/1.7 billion/ 1.9 billion yuan, respectively. If restricted shares of this incentive plan are granted in 2025, the company's performance assessment target for 2025/2026 is a gross profit of 2.1 billion yuan/2.3 billion yuan, respectively, and the assessment trigger value is 1.7 billion yuan/1.9 billion yuan, respectively.

The DDR5 market penetration rate has entered a period of rapid growth. Lanqi Technology's 2024YH1 revenue increased 79.49% year on year, and net profit to mother increased 624.63% year on year

The 2024YQ2 global DDR5 market penetration rate increased to 45%-50% month-on-month, and the 2024YQ3 market penetration rate is expected to exceed 50%. Trendforce expects the DDR5 market penetration rate to be around 40%-50% for the full year of 2024, and is expected to grow to 65% in 2025. At the same time, DDR5 memory interface chips have entered the child generation iteration cycle. In 2024, the second generation of DDR5 will replace the first generation as the main market force. It is expected that with the release of new models from major PC manufacturers, the market share of DDR5 third-generation RCDs will gradually increase in the second half of 2024, and the entry of new products into the market during the product iteration period will drive the company's interface chip ASP upward. As a leading DDR5 interface chip company, the company fully benefited; 2024H1 achieved revenue of 1.663 billion yuan, an increase of 79.49% year on year; of these, interconnect chip revenue was 1.528 billion yuan, up 67.89% year on year; Tianjin server revenue was 0.13 billion yuan, up 845.69% year on year.

2024YH1's gross profit was 0.962 billion yuan, achieving net profit attributable to mother of 0.593 billion yuan, an increase of about 624.63% over the previous year. In the application of DDR5 LRDIMM, Lanqi uses a “1+10” architecture, and one DDR5 RCD chip needs to be equipped with ten DDR5 DB chips; the supporting chips SPD, TS, and PMIC have all been self-developed, benefiting from the rising penetration rate of the DDR5 module market, and shipments of SPD, PMIC and TS chips will grow simultaneously.

Driven by the AI wave, the company's high-performance “capacity chips” are expected to enter a period of rapid growth, and demand for PCIe Retimer chips is showing a “rigid” trend. Currently, a typical mainstream AI server with 8 GPUs requires 8 or 16 PCIe 5.0 Retimer chips, while a server with 4 GPUs requires 4 to 8 PCIe Retimer chips. Lanqi is one of the three companies in the world to mass-produce PCIe 4.0 Retimer chips; we expect the global PCIe Retimer market to reach about 0.5 billion US dollars in 2024, with a market size growth rate of about 39%; the growth rate in 2025 is about 36%; and the growth rate is about 40% in 2026. The company's CKD chip development is at the forefront of the industry. DDR5 6400MT/s and above memory is usually equipped with high-performance CPUs. With the introduction of AI PCs, the market share of high-performance PCs will increase, thereby driving the growth in demand for DDR5 memory interfaces and CKD chips; it is expected that from 2025, CKD chips will benefit from a wave of switching, and market demand may reach 0.2 billion in the next 2-3 years. The market size of CKD chips is expected to grow to 0.5 billion dollars by 2027. The company has a forward-looking layout for MRDIMM and MXC chip research and development. Under the challenges and market opportunities of server memory, the global CXL market is expected to enter the initial phase in 2025; the global CXL market size will be 2.1 billion US dollars in 2026, and the global CXL market will reach 15.8 billion US dollars in 2028.

Investment advice

We expect the company's net profit to be 1,402 million yuan/2,286 million yuan/3054 million yuan in 2024-2026, with net profit growth rates of 210.8%/63.1%/33.6%, respectively; in 2024-2026, the company's EPS will be 1.23 yuan/2.01 yuan/2.68 yuan, respectively. Corresponding to the closing price of 52.09 yuan on September 4, 2024, the company's PE from 2024 to 2026 was 42.46 times/26.04 times/19.49 times, respectively. The storage cycle bottomed out and increased mass production and shipment of new products, driving the company's performance upward, and there is plenty of room for growth. Maintain the company's “gain” rating.

Risk warning

The downstream demand recovery process fell short of expectations, and the AI PC market penetration rate increased more slowly than expected, resulting in a slower than expected increase in the DDR5 interface chip market penetration rate. The company's R&D progress fell short of expectations, and the company's DDR5 fourth-generation chip and MXC new product development and mass production were slower than expected. The increase in the company's upstream supply-side prices was higher than expected. Competition in the downstream market has intensified, and competition in the short to medium term storage market has led to an increase in the company's product market share and sales prices falling short of expectations.