Main points of investment

Dedicated to Bluetooth audio SoC, the launch of a new generation of smartwatch chips is expected to help the growth of Torch Core Technology focuses on middle and high-end intelligent audio SoC chips, there are three major product families, namely Bluetooth audio SoC chip, portable audio and video SoC chip and intelligent voice interaction SoC chip. Bluetooth audio SoC chip is the company's main product, accounting for 65.31% of revenue in 2022; the products are mainly used in Bluetooth speakers, Bluetooth headsets, smartwatches and other fields. 1) in the field of Bluetooth speakers, the company has become the mainstream supplier of terminal brands in the industry and has realized the domestic replacement of middle and high-end Bluetooth speakers SoC. Downstream customers include SONY, Harman, Anke Innovation, Huawei, XIAOMI, Logitech and other manufacturers. 2) in the field of Bluetooth headphones, the company is actively working on the differentiated market; according to the 2022 annual report, the mid-to-high-end Bluetooth headset chips ATS302X that support open headphones and the new generation of radio competition headset chips that support LE Audio and lower power consumption have started to ship; and the products have entered the supply chain of terminal headset brands such as Glory, realme and audio transmission. 3) in the field of smartwatch, the company took the lead in introducing Bluetooth dual-mode smartwatch single chip solution. The first generation highly integrated smartwatch chip ATS308X is now used as the main control chip in many terminal watch models, such as Noise, Fire-Boltt, realme, boAt and so on. The new generation of smartwatch chips is expected to hit the market this year; the chip extends the multi-core heterogeneous SoC design architecture, greatly improves CPU performance, nearly triples memory, and supports dual acceleration engines of 2D GPU and 2.5D GPU.

AI helps the diversified upgrading of scenarios, excellent technology to meet the needs of end-to-side applications. With the AI model enabling, downstream application scenarios become more diversified, while human-computer interaction experience is greatly improved. With the increasing intelligence of large models in the cloud, end-side SoC chips need to have stronger computing power and lower power consumption. According to the summary of investor activities in March 2023, the company's portable audio and video SoC chip has an obvious competitive advantage of low power consumption, with standby power consumption as low as 10uA and music player power consumption as low as 6mA. The company's voice interactive products have voice pre-processing and sound post-processing technology, multi-MIC array technology, speech recognition and speech processing acceleration, audio and video codec technology, focus on end-to-side applications, and can be combined with corresponding algorithms to achieve end-to-side voice acquisition, speech pre-processing, speech recognition and cloud voice data interaction and other functions. The products have been mass-produced and used in intelligent air conditioners, intelligent home panels, Bluetooth voice remote controls, voice mice, translation sticks, intelligent recorders and other products. The company's intelligent recording pen chips have covered iFLYTEK, Philips and Hanwang and other terminal brands. In addition, the new generation of intelligent Bluetooth audio chip being developed by the company integrates the AI algorithm hardware acceleration engine of the general memory computing architecture, which can significantly reduce the data migration storage efficiency and power consumption overhead, greatly improve the computing power, while meeting the low power consumption requirements of end-to-side devices.

Profit forecast

1) Bluetooth audio SoC chip: SIG data show that the global Bluetooth audio products have a compound annual growth rate of 6% from 2023 to 2027. According to Counterpoint, shipments of the global smartwatch market increased by 12% in 2022; of which the Indian market grew by 151%, accounting for 21%, surpassing China to become the second largest smartwatch market; the company's smartwatch chips have been imported into Indian smartwatch manufacturers Noise and Fire-Boltt. It is estimated that from 2023 to 2025, the company's Bluetooth audio SoC chip sales growth rate is 45%, 40% and 30%, respectively, and the gross profit margin is 38.97%, 40.71% and 41.63%, respectively.

2) Portable audio and video SoC chip: this product is the earliest and most mature product line of the company, and the industry as a whole is relatively stable. It is estimated that in 2023-2025, the company's sales growth rate of portable audio and video SoC chips will be 10%, 8%, 5%, and the gross profit margin will be 48.77%, 49.72%, 49.91%, respectively.

3) Intelligent voice interaction SoC chip: according to the China Voice Industry Alliance, the global intelligent voice industry will reach US $35.12 billion in 2022, an increase of 33.1%. According to Deloitte statistics, China's intelligent voice market will be 34.1 billion yuan in 2022, an increase of 13.4%. It is estimated that from 2023 to 2025, the sales growth rate of the company's intelligent voice interaction SoC chip will be 40%, 40%, 40%, and the gross profit margin will be 30.26%, 35.24%, 39.86%, respectively.

Investment suggestion: the company continues to develop high-quality, high value-added domestic intelligent audio SoC chip. We forecast that the operating income of the company from 2023 to 2025 will be 5.6pm 743pm 938 million, with a growth rate of 32.8%, 26.2%, respectively, and the net profit of homing will be 0.72 million, respectively, with a growth rate of 34.6%, 43.6% and 27.2% respectively. The corresponding PE is 55.4, 38.6 and 30.4, respectively, and the industry average is 69.71, 50.01, 38.64, respectively. Considering that the company's current revenue volume is still relatively small, there is plenty of room for future development with the continuous introduction of new products. Cover for the first time, giving a "buy" rating.

Risk tips: downstream market demand recovery is not as expected, product development or verification process is not expected, Bluetooth headset SoC chip market competition aggravates the risk, international trade friction risk and so on.