The company is an IC design company that mainly focuses on storage products. The company's 23-year performance was pressured by sluggish traditional data centers and inventory removal from downstream manufacturers. However, as demand in the downstream terminal application market picks up, the company's memory chip business is expected to recover. At the same time, the layout of new products in high-value-added fields such as industry and automobiles, and new products such as NOR Flash are expected to inject new momentum into the company's long-term growth. Covered for the first time, giving a buy rating.
Key points to support ratings
Weak demand and the withdrawal of manufacturers put pressure on the 23-year performance, and the company's calm entry into 24Q1 is beginning to show. Affected by factors such as global macroeconomic fluctuations, declining boom in the terminal electronics industry, and adjustments in procurement and inventory strategies by downstream module manufacturers, weak demand in the PC and server market caused major global memory module manufacturers to reduce inventory pressure by suspending procurement and reducing production capacity, putting pressure on the company's overall operation in 2023. However, entering 2024, as demand in the downstream application market gradually picked up, and the company continued to upgrade technology and strengthen product promotion, sales and comprehensive services, the overall sales situation of the company's major products showed a good growth trend, driving the company's 24Q1 revenue of 24Q1 to achieve 247 million yuan, an increase of 72.49% over the same period last year, creating the best results in the same period in history.
The recovery in the data center boom and continued penetration of DDR5 are driving the growth of SPD volume. Currently, major foreign manufacturers of Intel and AMD have successively released server and PC CPU products that support the DDR5 memory standard. As DDR5 upgrades continue to penetrate and sub-iterate, supporting components including memory and related supporting chips are expected to be upgraded simultaneously. The company promptly grasped the market development opportunities brought about by the iterative upgrading of memory technology, cooperated with Lanqi Technology to develop SPD products supporting next-generation DDR5 memory modules, and is expected to continue to benefit from this wave of increased DDR5 penetration. The company and Lanqi Technology have taken a first-mover advantage in this field and achieved leading positions in related market segments.
With the improvement in the inventory level of downstream memory module manufacturers and the continuous increase in the penetration rate of DDR5 memory modules, 24Q1's SPD product sales have increased significantly year-on-year.
Smartphones and automotive electronics stabilize the basic EEPROM disk, and new products from multiple business lines go hand in hand to help deepen the storage product line. With the upgrading and development of mobile phone camera modules and the recovery and growth of the smartphone market, the company's smartphone camera EEPROM product line has achieved remarkable results. In terms of automotive EEPROM, sales and revenue grew rapidly in 2023, consolidating the leading position in the industrial EEPROM product market. In terms of vehicle regulation EEPROM, the company now has a full range of automotive grade EEPROM products of A1 and below. The end customers include many mainstream domestic and foreign car manufacturers. Shipments of automotive-grade EEPROM products grew rapidly in 2023, and the company is active Improving the technology accumulation and layout of A0 grade standard products is expected to continue to benefit from the increase in demand for EEPROM under the intelligent trend of new energy vehicles. In addition, NOR Flash products developed by the company based on the technology and customer advantages of the EEPROM business have been delivered in batches to some customers, with shipments exceeding 100 million units; the field of high-value-added products such as closed loop and optical anti-shake (OIS) voice coil drive motor chips has been smoothly expanded, and the product layout has been further improved, broadening the company's long-term growth space.
valuations
Considering the recovery in storage and data center demand, under the AI wave, the company actively lays out DDR5 memory modules to support high-value-added applications such as SPD and automotive electronics, and closely develops new products such as NOR Flash, closed loop and OIS voice coil motor driver chips, which are expected to be driven by multi-dimensional growth. We expect the company to achieve operating income of 1404/13.75/1,669 billion yuan in 2024/2025/2026, and net profit to mother of 3.42/4.80/633 million yuan, respectively. The latest diluted share capital EPS is 2.16/3.02/3.99 yuan, corresponding to PE 24.8/17.7/13.4 times, respectively. Covered for the first time, giving a buy rating.
The main risks faced by ratings
The recovery progress of the storage market fell short of expectations, the DDR5 penetration rate fell short of expectations, the development of new products fell short of expectations, and industry competition intensified.