Core views

The company released three quarterly reports. In Q1-3, revenue was 2.571 billion yuan, up 68.56% year on year; net profit to mother was 0.978 billion yuan, up 318.42% year on year; net profit after deducting non-return to mother was 0.874 billion yuan, up 460.88% year on year. The company went through the 23H1 industry's difficult inventory recovery period. Fundamentals rebounded strongly from 23H2. 24Q3 revenue remained high and net profit reached a record high. The company will continue to benefit from the DDR5 upgrade cycle for servers and PCs. On the AI side, retimer shipments continued to increase, and market share increased markedly. MRCD/MDB, CXL, and CKD are expected to expand in 25 years, and the three AI capacity chips are building a new growth curve. It is recommended to focus on it.

occurrences

The company released three quarterly reports. In Q1-3, revenue was 2.571 billion yuan, up 68.56% year on year; net profit to mother was 0.978 billion yuan, up 318.42% year on year; net profit after deducting non-return to mother was 0.874 billion yuan, up 460.88% year on year. Q3 revenue was 0.906 billion yuan, up 51.60% year on year, down 2.35% month on month; net profit to mother was 0.385 billion yuan, up 153.40% year on year and 4.10% month on month; net profit after deducting non-return to mother was 0.33 billion yuan, up 116.83% year on year, up 1.51% month on month.

Brief review

Memory interface chips: DDR5 accounts for more than 50%, and revenue has reached a record high. Server-side DDR5 penetration increased further, and the company's RCD and supporting chip shipments grew steadily month-on-month, driving continued growth in revenue and profit. The revenue of the Q3 interconnect product line reached a record high of 0.849 billion yuan, up 46.02% year on year, up 1.92% month on month, and gross profit margin 62.21%, which decreased slightly from month to month, due to a month-on-month decline in high-margin capacity chip shipments. Currently, the company's DDR5 second generation RCD shipments exceed the first generation. The third generation will begin large-scale shipments, which is expected to boost the unit price and gross margin of the product. CKD, a memory interface chip for AI PCs, was shipped in the second quarter. With the release of Intel's next-generation PC processors, CKD is expected to be shipped on a large scale in '25, increasing revenue and profits.

AI capacity chip: New product scale shipment, construction of a new growth curve. The revenue of the three AI power chips grew rapidly in the first half of the year. Q2's revenue in a single quarter was 0.13 billion yuan, which more than doubled from month to month. Q3's revenue temporarily declined due to large-scale client-side trials. 1) PCIe retimer:

Benefiting from the rapid growth in AI server demand, the company's PCIe Retimer 5.0 doubled quarterly. The 24Q1-Q2 shipped 0.15 million units and 0.3 million units, and continued to double month-on-month in Q3, with shipments reaching more than 0.6 million units. 2) MRCD/MDB: Mainstream cloud computing/Internet vendors at home and abroad have begun large-scale trials and are on the verge of deployment. 3) CXL MXC: In May 2023, Samsung launched the first 128GB DRAM supporting CXL 2.0. Equipped with the company's MXC products, the CXL ecosystem is gradually improving, and the company is in a leading position.

Profit forecasting and valuation: The company has gone through the 23H1 industry's inventory difficulties. Fundamentals have rebounded strongly since 23H2. 24Q3 memory interface chip revenue and net profit reached record highs, and will continue to benefit from the DDR5 upgrade cycle for servers and PCs. On the AI side, Retimer has begun large-scale shipments, and its market share has increased significantly. MRCD/MDB and CXL are on the verge of release, and the three AI capacity chips are building a new growth curve. The estimated net profit for 24-26 is 1.354 billion yuan, 1.827 billion yuan, and 2.415 billion yuan, respectively, corresponding to PE 58x, 43x, and 33x. It is recommended to focus on it.

Risk analysis

1. DDR5 penetration falls short of expectations. Currently, the server and PC industry is in the inventory replenishment stage. DDR5 still has a premium compared to DDR4, and customer procurement intentions are uncertain. If restocking falls short of expectations and demand falls short of expectations, then the DDR5 penetration rate falls short of expectations, which will affect the company's related product shipments;

2. New product development falls short of expectations. The company is advancing research and development of DDR5 successor RCD, DDR5 second generation MRCD/MDB, and CXL MXC. There is a lot of new product development, and technical barriers are high. There is a risk that R&D will fall short of expectations; 3. Geopolitical risks. The company's main direct customers are DRAM module manufacturers, and its indirect customers and partners are server manufacturers and CPU manufacturers. Most of the manufacturers are overseas companies. If geopolitical friction intensifies, it will increase supply chain risks.