Incidents:

On April 13, the company released its 2023 annual report. In 2023, it achieved operating income of 4.531 billion yuan, -16.28% year-on-year, net profit to mother of 537 million yuan, or -31.93% year-on-year; in the fourth quarter of 2023, it achieved operating income of 1.11 billion yuan and a gross profit margin of 38.38% in Q4. The total R&D investment in 2023 was 708 million yuan.

The layout of the three product lines has been deepened, and there are many highlights of the new products:

The company's main business includes computing chips, memory chips, analog chips, and interconnect chips. In '23, it achieved revenue of 1,108 billion, 2,911 million, and 408 million respectively, accounting for about 25%, 64%, and 9% respectively. The computing chip product line is mainly used in the fields of smart hardware products such as biometrics, QR code recognition, commercial equipment, smart homes, educational electronics, etc., and smart vision-related fields such as security monitoring, smart doorbells, and face recognition devices; the main products of memory chips include SRAM, DRAM, Flash, etc. with high integrated density, high performance quality, and high economic value, mainly for automotive, industrial and medical industries; analog chip and interconnect chip product lines include various LED drivers, DC/DC, GreenPhy, and G.VN, LIN, and CAN chips Tablet products can provide various types of products for the automotive sector, industrial regulations, household appliances, and consumer fields. We believe that domestic semiconductors have been in decline for more than 2 years. As channel inventories are cleared, supply is improving day by day, and the company continues to introduce new products in the three major fields, the company's revenue and profit levels are expected to continue to improve.

Global storage is expected to enter an upward cycle, and automotive intelligence is expected to drive a sharp rise in DRAM volume and price:

The company's memory chips are divided into three categories: SRAM, DRAM and Flash, which are mainly aimed at the automotive, industrial, medical and other industrial markets and high-end consumer markets. According to the annual report, in order to meet the demand for higher capacity DRAM products brought about by the continuous development of automotive intelligence, the company is developing DRAM technology and products for next-generation processes. The next-generation process can support the company to develop larger capacity DRAM products. The company's DRAM products target professional applications, and the products cover various capacity specifications such as 16M-16G. We believe that as leading international manufacturers such as Samsung, Hynix, and Micron control production capacity and reduce supply, the first half of the rise in the price of memory chips depends on “supply contraction”; with the gradual scaling of AI training and reasoning, cloud training inference, mobile phone/PC reasoning, vehicle intelligence, and autonomous driving will significantly increase the demand for DRAM, and the latter half of the price increase of memory chips is expected to be “driven by demand.” As a domestic storage leader and deepening its layout in the automotive DRAM market, the company is expected to continue to benefit.

Investment advice

We expect the company's revenue from 2024 to 2026 to be 5.392 billion yuan, 6.201 billion yuan, and 7.131 billion yuan, respectively, and net profit to mother of 849 million yuan, 1,124 million yuan, and 1,295 billion yuan, respectively.

Using the PE valuation method, considering the growth of the company's new products and expected to benefit the storage industry from entering an upward cycle, profitability is expected to continue to increase steadily in 24 to 25 years. It was given 45 times PE in 2024, corresponding to a target price of 79.3 yuan, maintaining a “buy-A” investment rating.

Risk warning: Market demand falls short of expectations; new product launches fall short of expectations.