occurrences

Lanco Technology released an operating data report for the first three quarters of 2023: the company achieved revenue of 1,034 billion yuan in the first three quarters of 2023, a year-on-year decrease of 19.28%; realized net profit to mother of -37 million yuan, a year-on-year decrease of 194.15%. According to calculations, the company achieved revenue of 328 million yuan in a single quarter of 2023, a decrease of 9.42% over the previous quarter; realized net profit to mother - 0.17 billion yuan, an increase of 39.21% over the previous quarter.

Key points of investment

The company's performance in the third quarter was under short-term pressure, and profitability declined

In Q3 2023, the company achieved revenue of 328 million yuan, a year-on-year decrease of 32.52% and a month-on-month decrease of 9.42%. The company's profitability declined, with gross margin of 4.15% in the third quarter, a year-on-year decrease of 4.85 pcts; sales/management/R&D expense ratios were 4.14%/4.63%/2.08%, respectively, up 0.91/2.92/0.80 pcts year-on-year. The main reason for the increase in the company's management expense ratio is the preparation of new businesses and the increase in labor costs; the main reason for the increase in R&D expenses is to strengthen technological innovation. The company's net profit for the third quarter was -0.17 billion yuan, a year-on-year decrease of 200.26%.

A wide range of businesses are expected to benefit from the recovery of the storage industry

The company is deeply involved in the field of flash memory. Currently, its products include SSD solid state drives, DRAM memory sticks, embedded storage, and mobile storage. The company's product application scenarios are diverse. SSD solid state drives and DRAM memory sticks are mainly used in mobile phones, data centers and servers; mobile storage products are mainly used in PCs, driving recorders, drones, etc.; embedded storage is mainly used in automotive electronics, aerospace, industrial automation, wearable devices, etc.

The company actively carried out product development and innovation. In the first three quarters of 2023, R&D expenditure was 25.8473 million yuan, an increase of 47.28% over the previous year. In terms of solid-state drives, the company continues to optimize the solid-state drive product line based on the SATA protocol and PCIe protocol to meet the needs of different customers; in terms of memory products, the company continues to advance the research and development of DDR5 memory products, and has formed different series of product lines such as Ultralight and Yueying.

Since September 2023, memory chip prices have shown a pullback trend. Samsung said it has signed a memory chip supply agreement with the customer to raise the price of DRAM and NAND flash memory chips by 10-20%; Micron raised the contract price of NAND Flash wafers by about 10%; and SK Hynix also announced plans to increase the price of the corresponding products. The company has a perfect layout in the storage field and is expected to benefit from the recovery of the industry.

▌Improve the storage industry chain and lay out sealing and testing plants and intelligent computing centers

Actively lay out upstream storage and testing plants and downstream AI intelligent computing to broaden business development space. After Shaoguan State-owned Holdings in 2022, the company actively integrated into the Shaoguan Data Center Industrial Cluster and actively cooperated with upstream and downstream enterprises. At present, the company has built a joint venture to build a Langzhengfeng testing plant in Shaoguan and established Lanco Intelligent Computing (Shaoguan) Technology Co., Ltd. to continue deepening the horizontal and vertical layout of the storage industry chain.

Profit forecasting

It is predicted that the company's revenue for 2023-2025 will be 19.98, 24.94 billion yuan, and 3.685 billion yuan, EPS will be 0.28, 0.38, and 0.48 yuan, respectively. The current stock price corresponding to PE is 112, 83, and 65 times, respectively. We are optimistic about the company's diversified layout in the storage industry, covering it for the first time, and giving it a “buy” investment rating.

Risk warning

Weak market demand, risk of price fluctuations in storage products, risk of technology backwardness, etc.