Matters:

On February 28, 2024, the company announced the 2023 Annual Results Report:

1) 2023: Operating income of 780 million yuan, up 8.40% year on year; net profit to mother was 59 million yuan, a decrease of 34.56% year on year; net profit after deduction was 0.3 million yuan, a decrease of 43.86% year on year;

2) 2023Q4: Operating income of 200 million yuan, up 4.18% year on year, up 2.26% month on month; net profit to mother - 01 million yuan, net profit after deducting net profit from mother - 08 billion yuan.

Commentary:

Revenue is growing steadily, and the recovery in demand combined with the release of new products is expected to drive the company's performance to continue to improve. Demand for terminals was weak in 2023, and the company actively expanded its market share in the home appliance sector and developed the “optical storage and charging” business, driving steady revenue growth. By business, the company continued to increase its market share of white & black electricity in 2023, with revenue from the home appliance business being more than 25%; “optical storage and charging” and server business rapidly released volume, but the decline in communication business led to the company's industrial control business revenue of about -4% year on year; affected by sluggish demand in the consumer market, the company's standard power supply business revenue was about -16% year on year, but since 2023Q3, the industry has shown signs of recovery in demand. H2 is about +18% month-on-month. In the future, as demand recovers and new businesses expand rapidly, the company's performance is expected to continue to grow.

The recovery in the industry cycle is compounded by the acceleration of domestic substitution, and domestic PMIC manufacturers are expected to usher in a new round of growth.

Referring to the current state of the industry cycle, we believe that the semiconductor industry boom cycle has begun to gradually pick up. Currently, domestic analog chip industry companies are in the inventory removal phase or nearing completion. The home appliance industry has shown signs of a rebound in demand, and the release of new mobile phone and PC models is expected to drive a gradual recovery in demand for related pan-consumer chips. In terms of the competitive landscape, at present, China's power management chip market is still dominated by European and American companies such as TI and PI, and domestic manufacturers are catching up at an accelerated pace. A series of companies represented by Chippenwei have broken overseas monopolies in some segments, and it is expected that the future will continue to benefit from the recovery in downstream market demand and the acceleration of domestic substitution.

The company maintains a high level of investment in R&D, actively lays out the fields of industry and vehicle regulations, and opens up room for long-term growth. The company's endogenous extension expands product categories and application fields. As of the 2023H1 reporting period, there are more than 1,700 effective product models. Currently, the company is actively deploying industrial, automotive and other fields. Among them, industrial chips in the field of optical storage have been mass-produced in 2023; development of DrMOS and multiphase controllers in the server field is progressing smoothly; in the automotive field, many products have passed AEC-Q100 reliability certification, and automotive-grade high-voltage DC-DC and Gate Drivers are being tested on the client. In the future, the company is expected to rely on past technology accumulation in the field of home appliances and other fields to quickly achieve breakthroughs in new businesses and new customers.

Investment advice: Downstream demand is gradually picking up, domestic substitution continues to advance, the company continues to expand product categories and application areas, and future growth can be expected. Considering that the recovery in downstream demand falls short of expectations, we adjusted the company's 2023-2025 net profit forecast from RMB 0.82/1.64 billion to RMB 0.59/1.38/200 million yuan, corresponding EPS of RMB 0.45/1.05/1.53. Referring to the industry's comparable company valuation and the company's historical valuation level, we gave the company 48 times PE in 2024, corresponding to a target price of 50.4 yuan/share, maintaining a “strong” rating.

Risk warning: Industry competition intensifies; downstream demand recovery falls short of expectations; new product development progress falls short of expectations; downstream customer certification falls short of expectations.