The consumer market resumed growth in 1Q24, and the industry market has yet to recover significantly. In 1Q24, we achieved revenue of 1.07 billion yuan (YoY -5.8%, QoQ -9.4%), net profit attributable to mother of 87 million yuan (YoY -23.9%, QoQ -48.3%), net profit after deducting non-attributable net profit of 82 million yuan (YoY -26.05%, QoQ -43.6%).

Computing chips benefited from product expansion and consumer demand recovery, with revenue growing to 240 million yuan (YoY +13.3%); analog chips benefited from a recovery in demand in office equipment, white goods, and some consumer markets, and increased demand from domestic automotive customers, and revenue increased to 106 million yuan (YoY +16.9%); however, due to factors such as continued inventory pressure from customers in the industrial, medical and other fields and the lack of significant recovery in global industry market demand, the revenue of memory chips facing the industry fell to 641 million yuan (YoY -13.0%).

The 2023 results were pressured by sluggish market demand, and revenue for computing chips bucked the trend. In 2023, the company achieved revenue of 4.531 billion yuan (YoY -16.3%), net profit attributable to mother of 537 million yuan (YoY -31.9%), net profit of 491 million yuan (YoY -34.2%), and gross profit margin of 37.1% (YoY -1.5pct).

Due to sluggish market demand in the automotive, industrial, medical and other industries, inventory pressure in the industrial chain further affected customer procurement needs. The sales revenue of the company's memory chips and analog and interconnect chip product lines to the industry market all declined year-on-year, achieving revenue of 2,911 billion yuan (YoY -28.2%) and 409 million yuan (YoY -14.6%) respectively, causing the company's overall revenue and net profit to decline year on year. Some consumer markets targeted by computing chips showed a recovery trend, achieving revenue of 1,108 billion yuan (YoY +43.9%).

Strengthen the computation+storage+simulation layout to consolidate long-term growth capabilities. The company's AI chips are expanding into pan-video markets such as medical, industrial, and USB cameras, and will expand more application markets in the future; the company will continue to accumulate technology development capabilities for high capacity, high performance and low power consumption in the storage business, promote new product research and development with more advanced process processes according to market positioning and business planning requirements, and continue to work to improve product quality and optimize costs. In terms of simulation and interconnection business, the company continues to invest in high-brightness, high-current, high-precision and light-efficiency LEDs, and continuously updates and iterates technology and products in advanced automotive interior connection technology, leading the industry's demand trend.

Investment advice: Domestic computing+storage+analog chip design leader, maintaining a “buy” rating.

The company's memory chips, analog and interconnection chips, which are mainly aimed at the industry market, are currently facing uncertain market demand. The downstream inventory adjustment period is longer than our previous expectations, reducing 2024-2025 revenue to 52.18/6.467 billion yuan (previous value of 6.98/8.63 billion yuan) and net profit to 654/899 million yuan (previous value of 1,18/1.53 billion yuan). The estimated 2026 revenue is 7.671 billion yuan, and net profit to mother is 1.24 billion yuan; the current stock price corresponds to 2024-2026 47.2 billion yuan/ 34.4/25.7 times PE, maintaining a “buy” rating.

Risk warning: downstream demand falls short of expectations; new product development falls short of expectations; worsening international relations, etc.