1Q24's strong performance, which is optimistic that the 24-year upward cycle will fully benefit Jiang Bolong's 2023 and 1Q24 results: 23 billion yuan in revenue of 10.13 billion yuan (yoy +22%), net profit to mother of 8.3 billion yuan (yoy -1237%); of these, 4Q23 revenue was 3.55 billion yuan (yoy +108%; qoq +23%), and net profit to mother was corrected for the first time since 2Q22, to 55 million yuan, gross profit margin of 18.5% (qoq+13.6pp). 1Q24 had revenue of 4.45 billion yuan (yoy +201%; qoq +26%), net profit to mother of 380 million yuan (yoy +237%), and gross profit margin of 24.4% (qoq+5.9pp). Mainly due to rising prices in the storage industry, the module chain unleashed profit elasticity. Looking ahead to 24 years, we are optimistic: 1) The storage cycle will increase, profitability will gradually pick up, and module manufacturers will fully benefit. 2) The layout of the main control chip and packaging and testing process is expected to drive an increase in gross margin. We expect net profit to be $14.5/12.6/1.06 billion for 24/25/26. Considering the company as a domestic module leader, it gave 3.08 x 24 year PS (comparable to Wind, a consistent expected average of 2.9 x) for memory chip design, main control chip design, and package testing, maintaining a target price of 128.5 yuan and a “buy” rating.

2023 review: Improve the layout of the industrial chain. As storage cycle performance and revenue increase in 2023, the company perfected the industrial chain layout to form core competitiveness in memory chip design, packaging and testing, main control chip design and firmware algorithm development, and memory product design. The product line continues to expand: 1) The marketization of enterprise-level products has been further implemented, and the company's products have passed important customer certifications such as Lenovo, JD Cloud, and BiLiBili. 2) The main control chip is gradually being introduced into mass production, and it is optimistic that the future will enhance the competitiveness of module products and increase gross profit margin; 3) We have established a self-developed SLC NAND Flash memory chip design business, and the products have been mass-produced and sold. 2023 revenue by product: 1) Embedded storage revenue of 4.42 billion yuan (yoy +1.3%, accounting for 43.7%), gross profit margin of 3.1%, down 12.3pp; 2) solid-state drive revenue of 2.80 billion yuan (yoy +86.3%, accounting for 27.7%), gross profit margin of 5.5%, up 5.6 pp; 3) mobile storage revenue of 2.33 billion yuan (yoy +14.2%, accounting for 23.0%), gross profit margin of 24.6%, increase of 6.0 pp; 4) memory stick revenue of 5.1 billion yuan (yoy) +23.1%, accounting for 5.1%).

2024 outlook: Promising upward cycle to drive profit growth

Looking ahead to 2024, 1) storage cycle: the original factory supply limit may continue, and prices are expected to continue to rise; 2) Embedded storage and PC modules: mobile phone and PC shipments are gradually bottoming out, and mass production of AI phones and AI PCs is expected to start a new wave of rotation. 3) Enterprise-grade storage: We believe data center demand is expected to gradually recover in 2024, while Xinchuang's demand will drive new growth in the company's enterprise storage eSD and RDIMM products. 4) New product development: The company continues to launch vehicle grade storage module products and new main control products, which will each bring new revenue growth points and increased gross margin to the company.

Maintain target price of 128.5 yuan and “buy” rating

Considering that 1Q24's performance recovery was better than previously expected, the 24/25 profit forecast was raised, and net profit due to mother for 24/25/26 is estimated to be RMB 14.5/12.6/1.06 billion yuan (value before 24/25: RMB 5.7/1.18 billion). Considering the characteristics of the module industry and the company's leading position, 3.08 x 24-year PS (comparable to Wind's consistent expected average of 2.9 x) was given, maintaining a target price of 128.5 yuan and a “buy” rating.

Risk warning: Downstream demand recovery falls short of expectations, risk of storage price fluctuations.