Core views

The first three quarters of 2023 achieved revenue of 469 million yuan, a decrease of 35.66% over the same period last year, and realized net profit of 16 million yuan, a decrease of 91% over the same period last year. The company is a domestic GPU leader. It has a stable position in the field of military graphic display and control, and is expanding from airborne to shipborne and vehicle-mounted fields. The penetration rate is expected to increase further, and continued growth can be expected; miniaturized radar is expected to benefit from downstream models, leading to an explosion in demand; downstream domestic replacement demand for general-purpose chip products remains unchanged, and performance is expected to recover. The company countercyclically increased investment in R&D and steadily increased the development of high-performance general-purpose GPU chips, which is expected to open up the company's growth ceiling and broad market space in the future.

occurrences

On October 28, 2023, the company released its 2023 three-quarter report. The first three quarters of 2023 achieved revenue of 469 million yuan, a decrease of 35.66% over the same period last year, and realized net profit of 16 million yuan, a decrease of 91.00% over the same period last year.

Brief review

1. Various external adverse factors put pressure on the company's performance in the short term

Recently, the company released its 2023 three-quarter report. The first three quarters of 2023 achieved revenue of 469 million yuan, a decrease of 35.66% over the same period of the previous year, realized net profit of 16 million yuan, a decrease of 91% over the same period of the previous year, and net profit after deduction of net profit of -32 million yuan, a decrease of 123.86% from the same period last year. It is mainly affected by various factors such as macroeconomic fluctuations, demand fluctuations in downstream industries, and changes in sales structure, which have led to a decrease in revenue from products in the chip sector and products in the field of graphic display control.

2. Overall profitability declined slightly, and R&D efforts continued to be strengthened to maintain core advantages. The company's gross margin for the first three quarters was 60.8% (-3.97pcts), and gross margin declined. The expenses for the period were 365 million yuan (+12.72%), and the cost rate was 77.83% (+33.41pcts); of which sales expenses were 39 million yuan, an increase of 10.69% over the previous year, and the cost rate was 8.21% (+3.44pcts), mainly due to the increase in expenses due to increased market development activities during the reporting period; management expenses of 89 million yuan, an increase of 5.07% over the previous year, and the cost rate was 18.87% (+732pcts); R&D expenses were 239 million yuan, up 11.37% year on year, and the cost rate was 50.98% (+21.53pcts), mainly because the company continues to increase investment in R&D; financial expenses are -01 billion yuan, up 88.83% year on year. The main reason is that the company's bank interest income during the reporting period decreased compared to the same period last year.

3. The position of military image display control is steadily expanding downstream applications. The first-mover advantage of small special radars is expected to benefit. The model amplification graphic display control module is the “brain” of information integration and display processing. It is the company's earliest developed, most deeply accumulated product, and is currently the core product. The company has successfully developed a series of GPU chips with completely independent intellectual property rights, and developed a series of graphic display control module products with GPU chips developed independently by the company as the core, which has significant competitiveness in marketing. Currently, the company's products in the field of graphic display control are mainly used in the dedicated market, and will continue to develop applications in the general market in the future. In recent years, the company has carried out technological innovation and product expansion in response to the application needs of different industries, and achieved a clear leading edge in the airborne field. At the same time, the company has actively expanded into other fields, continuously developing and providing suitable graphic display control modules and supporting products for a wider range of application fields such as automotive, ship display control, and general markets.

The company began to accumulate technology in microwaves and signal processing earlier, and has a certain technological pioneer advantage in the field of small specialized radars. The company integrates multiple technologies to develop a series of radar products with active protection radar, speed radar, etc., to meet the diversity of customer needs and enhance the company's core competitiveness. On the basis of consolidating the original sector and module business, the company sorted out and integrated products and technology, developed a series of products in the field of wireless communication and products in the field of electromagnetic spectrum, including self-organized networks, gradually realized the development strategy of shifting from module level products to system level products, and continued to enhance the company's profitability and sustainable development capabilities. The future is expected to benefit from the release of related downstream models.

4. Definitely improving the field of high-performance general-purpose GPUs in the military, it is expected to open up the AI computing power market. The company recently released targeted additional distribution plans, raising no more than 3,973 billion yuan in total capital for high-performance general-purpose GPU chip development and industrialization projects and general-purpose GPU advanced architecture R&D center construction projects. The fund-raising investment project will jointly build a company-specific packaging testing production line with a third-party chip packaging testing manufacturer to push GPU products through existing process limitations; it will also target the important direction of meeting future high performance computing and data processing needs, enhance the company's further in-depth layout in the field of high computing power computing core architectures through research and development on topics such as high performance computing core architectures; and will effectively relieve the company's financial pressure, reduce the company's balance ratio, optimize the financial structure, and enhance the company's financing capacity.

The company's current products are mainly used in the traditional field of graphics processing, and this fund-raising project is expected to help the company enter the field of high-performance general-purpose GPUs. Currently, large AI models are bringing huge computing power requirements. High-performance general-purpose GPUs, as one of the basic hardware to achieve computing power, are currently the mainstream AI chip product type, and high-performance GPU chips may have huge market space.

5. R&D investment and talent reserves continued to increase, and the long-term incentive mechanism continued to be consolidated. In the first half of 2023, the company continued to increase R&D investment around graphics processing chip-related products and small specialized radar products. The company's R&D expenses were 166.499 million yuan, an increase of 23.77% over the previous year, accounting for 48.25% of the company's operating income. The company actively adjusts the structure of R&D personnel, expands development channels for high-potential talents, and absorbs high-level talents from all over the country and the world. As of June 30, 2023, the company had 1,296 employees, including 873 R&D personnel, accounting for 67.36% of the total number of employees. The company has a total of 439 graduate students and above, accounting for 33.87% of the total number of employees. Continued increase in R&D investment will help the company maintain its technological advantages and lay the foundation for the company's long-term development. The continuous and smooth implementation of the company's equity incentives helps the company fully mobilize the enthusiasm of employees, bind the company's core team, and improve the certainty of future performance.

6. The steady growth of the military products business is expected to usher in an explosion of demand. The future space for high-performance general-purpose GPU chips is broad, and the company that maintains an “increase in holdings” rating is the leading domestic GPU, has a stable position in the field of military graphic display control, and is expanding from airborne to shipborne and onboard fields. The penetration rate is expected to increase further, and continued growth can be expected; miniaturized radar is expected to benefit from downstream models, and demand for downstream substitution of general purpose chip products remains unchanged, and performance is expected to recover. The company countercyclically increased investment in R&D and steadily increased the development of high-performance general-purpose GPU chips, which is expected to open up the company's growth ceiling and broad market space in the future. The company's net profit from 2023 to 2025 is estimated to be 14.21, 19.06, and 2,504 billion yuan respectively, with year-on-year increases of -95.08%, 34.13%, and 31.40% respectively, corresponding to current stock prices of 2678.47, 1996.86, and 1519.68 times, respectively, maintaining the “increased holdings” rating.

Risk analysis

1. The expansion of the civilian market falls short of expectations. The company has implemented a military and civilian two-wheel drive strategy. Due to more intense competition in the civilian market, market expansion may not be smooth and affect future performance growth.

2. Risks of technological innovation and product development. Chip design is a technology and intellectual-intensive industry. Technology development and process innovation are key factors affecting the core competitiveness of enterprises. If the company cannot correctly judge future product and market trends, control the development trends of key technologies in the industry in a timely manner, and fail to insist on technological innovation or technological innovation that does not meet market demand, there is a risk that technological innovation will slow down and competitiveness will decline.

3. There is uncertainty about changes in the competitive landscape. The competitive landscape of the industry continues to evolve, market risk is increasing, and uncertainty is increasing.