Orient Securities: Gave Montage Technology a buy rating with a target price of 80.36 yuan

2022-05-05 Orient Securities Co., Ltd. Pu Jian, Ma Tianyi, Tang Quanxi conducted a study on Montage Technology and released a research report "DDR5 Mass Production Drives Performance Growth, New Product Reserves Are Abundant", this report gives a buy rating to Montage Technology, believing that its target price is 80.36 yuan, the current stock price is 60.28 yuan, and the expected increase is 33.31%.

Montage Technology (688008)

Core ideas

In 21 years, the company's revenue increased by 40% to 2.56 billion yuan, and the net profit attributable to the mother fell by 25% to 830 million yuan. Revenue from 4Q21 and 1Q22 was approximately RMB970 million and RMB900 million, up 173% and 201% year-on-year, respectively, and attributable net profit was approximately RMB320 million and RMB310 million, up 40% and 128% year-on-year, respectively.

Memory interface chip into the DDR5 upgrade cycle: With the mass production of DDR5 chips in 4Q21 and the continuous penetration in 1Q22, the revenue of interconnect chips 1Q22 increased by 94% year-on-year to 575 million yuan, and the gross profit margin dropped to 60.5%, mainly because the DDR5 memory module supporting chips were jointly developed by the company and partners, and the gross profit margin was lower than that of memory interface chips. The DDR5 memory module supporting chip is not only used in servers, but also used in personal computers, accounting for an increase in 1Q22. Montage has completed the tape-out of the DDR5 second-generation memory interface chip engineering sample and began testing and evaluation on major memory module manufacturers and mainstream server platforms. The increase in transmission rates will require new interconnect chips, and Montage plans to complete two new chip first-generation chip engineering prototypes in 22 years: 1) DDR5 mid-term UDIMM, SODIMM (for personal computers) will need CKD chips, JEDEC is developing product standards. 2) The MCR RCD and MCRDB memory interface chips with the server high-bandwidth memory module are more complex and have higher rates than ordinary RCD and DB chips.

Rich interconnection chip category: Montage is the only Chinese company mass-producing PCIe 4.0 Retimer chip, with 21 years of revenue of 12.2 million yuan, has completed the tape-out, device and system-level test evaluation of PCIe 5.0 Retimer engineering samples, began to send samples to partners for interoperability testing, and began to lay out the PCIe 6.0 Retimer series of chips. Montage also plans to complete the tape-out of the first generation of MXC engineering samples in 22 years, and the MXC chip is based on the CXL protocol and applied to memory expansion and pooling of servers. The company is also actively involved in the development of SerDes technology.

Jinjiao server platform product line continues to increase: Jinju CPU has been applied to finance, government affairs, transportation, data center and other fields, Jinjiao product line revenue in 21 years was 845 million yuan, 1Q22 was 325 million yuan, gross profit margin of 12.4%. Montage significantly increased its 22-year deal with Intel to $2.5 billion, demonstrating confidence in 22-year demand. The company plans to complete the development and mass production of the fourth generation of Jinyu CPUs in 22 years.

AI chip innovation is strong and progressing smoothly: Montage's AI chip is aimed at big data inference applications and medical big picture stream processing in the cloud, solving the bottleneck problems of CPU bandwidth, performance and GPU memory capacity, using near-memory computing architecture, integrating AI high-performance computing, heterogeneous computing, CXL high-speed interface, DDR memory control and other technologies. The company has completed the logic design, system integration and verification of the main subsystems of the AI chip, promoted the construction of the chip and big data software ecology, completed the functional verification and performance evaluation of the software and hardware tool chain, the main AI network model and the typical use cases of big data on various simulation platforms, completed the main function verification and performance evaluation for typical application scenarios on the FPGA prototype platform, and is expected to complete the tape-out of the first generation of AI chip engineering samples in 22 years

Profit forecasts and investment advice

We forecast the company's 22-24 year earnings per share of 1.10, 1.64 and 2.54 yuan respectively (the original 22-23 year forecast was 1.09 and 1.54 yuan, mainly up the memory interface supporting chip gross margin forecast, downgraded the sales, research and development expense rate forecast), according to the comparable company's 23-year average PE valuation, given a target price of 80.36 yuan, maintaining the buy rating.

Risk Warning

Server sales are less than expected; the stock price of the Science and Technology Innovation Board is at great risk; the proportion of foreign sales is relatively high; and Intel's technical architecture planning changes.

According to the research report data released in the past three years, the research team of Wang Fang of Zhongtai Securities has studied the stock more deeply, and the average forecast accuracy in the past three years is as high as 96.26%, and its forecast for the net profit attributable to the year 2022 is 1.744 billion yuan, and the forecast PE calculated according to the current price is 38.7.

The latest profit forecast breakdown is as follows:

A total of 13 institutions have given ratings, 11 buy ratings and 2 overweight ratings in the last 90 days; the average target price of institutions in the past 90 days has been 88.11. The Securities Star Valuation Analysis Tool shows that Montage Technology (688008) has a good company rating of 4 stars, a good price rating of 2 stars, and a valuation comprehensive rating of 3 stars. (Rating Range: 1 ~ 5 stars, maximum 5 stars)

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