Today, the concept of memory chips exploded, the plate index rose 8.34%, BIWIN Storage 20% daily limit, Shangluo Electronics, Tongyou Technology, Hengshuo Shares, Langke Technology, etc. rose more than 10%, and Demingli, GigaDevice Innovation, Jacques Technology, etc. 10% daily limit.
Today's sharp rise in the storage sector was first due to the news that the management refuted the rumors that a large number of micro-cap stocks would be delisted because of non-dividends, triggering an overall retaliatory rebound in the market, and then the news that BIWIN Storage announced a sharp increase in quarterly performance added fuel to the fire. However, these are superficial factors, and domestic substitution and cycle reversal are the long-term core investment logic of the A-share storage sector.
First, the news side
- Guo Ruiming, director of the Department of Supervision of Listed Companies of the China Securities Regulatory Commission, answered questions from reporters on issues related to dividends and delisting
Q: The revision of the stock listing rules has introduced the arrangement for the implementation of ST if the dividend does not meet the standard. Will a large number of companies be implemented due to non-standard dividends? Will they be delisted?
Answer: The implementation of other risk warnings (ST) if the dividends do not meet the standard, mainly focuses on improving the stability and predictability of dividends of listed companies, focusing on companies that have the ability to pay dividends but do not pay dividends for a long time or have a low dividend ratio. It should be pointed out that ST is not a delisting risk alert (*ST), but is mainly intended to remind investors to pay attention to the company's risks. If a company is ST for this reason alone, it will not lead to delisting, and it can apply for revocation of ST after certain conditions are met. Based on the 2020-2022 data, the number of companies in Shanghai and Shenzhen that may touch this standard is only more than 80.
2. BIWIN Storage released a performance forecast, which is expected to make a net profit of 150 million yuan to 180 million yuan in the first quarter, a year-on-year increase of 299.54%-323.04%, and a loss of 126 million yuan in the same period last year. In addition, Demingli reported a 525%-616% year-on-year increase in profit in the first quarter, and Montage Technology reported a 9.65-fold increase in 11.17 times in the first quarter.
3. With the increase in demand from the entire industry, Samsung, Micron and other upstream memory manufacturers have been brewing price increases, of which Micron rose by more than two percent in the second quarter. In terms of industry, TrendForce released a forecast for the average contract price of major storage products in the second quarter, which is expected to increase by 3%-8% QoQ for DRAM contracts and 13%-18% QoQ for NAND contracts in the second quarter of 2024.
Second, the investment logic
The global semiconductor market is nearly 4 trillion yuan, 80% of the semiconductors are integrated circuits, and digital chips in integrated circuits account for 8 percent, and then logic chips (176.6 billion US dollars) and memory chips (129.8 billion US dollars) account for the majority, which is the core of the core. For example, hard disks, memory modules, mobile hard disks and U disks in mobile phones and computers are all memory chips.
The opportunity in the semiconductor industry looks at the cycle reversal, while the opportunity for domestic semiconductors looks at domestic substitution. The big logic of memory chips is the same.
The price of storage products began to rise in the third quarter of last year, and now it has begun to reflect the company's performance.
1. Storage enters the recovery cycle
The prosperity of the memory chip industry is greatly affected by the relationship between supply and demand, showing a cyclical nature of 3~4 years, and the volatility is much greater than that of other sub-categories. The first three cycles of 2000, 2009, and 2017 correspond to the Internet era, mobile Internet, and cloud computing, respectively. In the fourth cycle, the epidemic led to the rapid growth of remote work, which led to a sharp increase in the demand for memory for PCs and mobile phones in 2021 and 2022, but after the epidemic subsided and the industry capacity expansion was high, the volume and price of memory chips fell, and manufacturers reduced production capacity, and the global memory chip production capacity has fallen to the level of 2019 by the end of 2023.
The outbreak of AI represented by ChtaGPT has driven the price of memory chips to rise due to the growth of demand, and the industry has entered a recovery cycle ahead of schedule, becoming the starting point of the fifth cycle of the industry.
According to WSTS data, the global memory chip market size will decline by 31% year-on-year in 2023, and it is predicted to grow by 45% in 2024, rebounding to $129.8 billion.
2. The price of memory has risen, and the industry has rebounded
In terms of price, DRAM and NAND Flash have begun to rise across the board since the fourth quarter of 2023, taking DDR4/4Gb/256Mx16 products as an example, the average contract price has increased from 1.02 yuan at the end of September last year to $1.27 at the end of February this year, an increase of 24.5%. The average price of the NAND/64GB/8Gx8 contract rose from $2.76 at the end of September last year to $3.39 at the end of February this year, an increase of 22.8%. After the earthquake in Taiwan, many memory manufacturers stopped quoting.
At present, the effect of memory price increase has also been transmitted to the company's performance, and global giants such as Samsung and Micron have recently announced performance reports that exceed expectations.
Samsung Electronics announced in early April that its operating profit in the first quarter of this year increased by 931.25% year-on-year, which has exceeded that of last year. Samsung raised NAND Flash chips by 10% to 20% in the fourth quarter of last year, and then increased the price by 20% in the first and second quarters of this year, which is far from industry expectations.
Micron's 2024Q2 (corresponding to December 23 to February 24) performance also exceeded expectations, and chip prices are expected to rise in the following quarters.
According to TrendForce's report, the DRAM 24Q1 contract price is expected to increase by about 13~18% quarter-on-quarter, and the NAND Flash 24Q1 contract price is expected to increase by about 15~20% quarter-to-quarter. It is expected that the quarterly increase in DRAM contract price in the second quarter is expected to be 3~8%, and the contract price of NAND flash memory is expected to increase by 13~18%.
3. Industry competition pattern
DRAM and NAND Flash dominate the global memory chip market, accounting for about 96.5% of the total. The global competition pattern is dominated by Korean manufacturers, supplemented by American and Chinese manufacturers.
Among them, the DRAM market is the most concentrated, mainly monopolized by South Korea's Samsung and SK hynix, and the United States' Micron, with CR3 reaching 96% in 2023. In terms of NAND, Samsung is in the lead, with a market share of 32.7% in 2023, while Japan's Kioxia, Western Digital, SK hynix, and Micron have similar market shares, with CR5 reaching 95%.
China's storage demand accounts for 30% of the world's total, but the self-sufficiency rate is less than 10%, of which Changcun and Changxin are the main forces of localization.
In addition to DRAM and NAND Flash, NOR FLASH is mainly used to store code and part of the data, and is the first choice for code flash memory applications such as mobile phones, DVDs, TVs, set-top boxes, and Internet of Things devices.
3. Analysis of core stocks
Let's take a look at the fundamentals of several key companies in the A-share industry from the perspective of company risk, operation and valuation.
- Beijing Junzheng
Beijing Junzheng was founded in 2005 by the earliest domestic microprocessor research and development team. In 2020, it acquired Beijing Sicheng to realize an integrated platform IC enterprise with storage, simulation, interconnection and computing. In 2021, the performance exploded, and it has fallen year by year in the past two years.
From a risk perspective, the three-year total cash flow from operating activities was 31.9%, which was good, and the company's goodwill was 25.98%, which was acceptable. There is no pledge by major shareholders, but the proportion of major shareholders of senior executives has been greatly reduced, reaching 8.3%.
At the operational level, the three-year average growth rate of operating income is 86%, and the three-year average growth rate of non-net profit is 643%, which is relatively high in 2021, pulling up the three-year average.
Finally, looking at the valuation, the rolling P/E ratio is 69.87 times, the price-to-book ratio is 2.57 times, and the current price-to-earnings ratio (TTM) and price-to-book ratio (LF) are both in the historical average: low area.
2. GigaDevice: The world's No. 1 fabless Flash supplier.
According to a report by Web-Feet Research, the company's Serial NOR Flash market share increased to 20% in 2022, ranking third in the world. The company's memory chip business accounts for about 60%, and its historical performance has grown steadily, with explosive growth in 2021. It is estimated that the net profit in 2023 will be 155 million yuan, a year-on-year decrease of 92.45%. The decrease was due to the provision for higher impairment provisions, fierce competition in the sensor business market, and declining product prices.
From a risk perspective, the total cash flow from operating activities for three years is 57%, and the company's goodwill is 5.13%, which accounts for a small proportion. There is no pledge by major shareholders, and the proportion of major shareholders of senior executives reducing their holdings is also small. The company's risk indicators are generally good, and there is no major risk.
At the operating level, the three-year average growth rate of operating income was 29.5%, and the three-year average growth rate of non-net profit was 11.5%.
Finally, looking at the valuation, the rolling P/E ratio is 122x, the P/B ratio is 3.08x, and the current price-to-earnings (TTM) ratio is at the historical average:
The price-to-book ratio (LF) is in the historical average: the low zone.
3. Longsys: NAND products account for a large proportion
The company's Lexar memory card has the second global market share, and the Lexar flash drive (USB flash drive) has the third global market share. In 2022, the performance will decline sharply as soon as it is listed, and it is expected that the revenue in 2023 will exceed 10 billion yuan, a year-on-year increase of 20.05%-26.05%, and the net profit attributable to the parent company will be -8.0 to -860 million yuan.
From a risk perspective, the three-year total cash flow from operating activities was -26%, no goodwill, no pledge by major shareholders, and a slight increase of 0.14% by major executive shareholders. The risk point is cash flow, which is the company's bloodline, and poor data means that the company's ability to continue operations is poor.
At the operational level, the three-year average growth rate of operating income is 14%, and the three-year average growth rate of non-net profit is 86%, which is also considered to have increased the average figure in 2021.
There is no need to look at the valuation, loss-making enterprises.
The agency predicts that the company's profit in 2024 will be between 2.97~14.64, with an average value of 5.69, and the current market value is 39 billion. Since 90% of the company's products are NAND, the elasticity to NAND price increases is also large, which is why the company's stock price is active.
4. Montage Technology: The world's leading memory interface chip
The company was listed on the NASDAQ in 2013 and privatized the following year. The main products include a full range of memory interface chips from DDR2 to DDR5, and the products have entered the international mainstream memory, server and cloud computing fields.
From a risk perspective, the total cash flow from operating activities for three years was 75%, there was no goodwill, no pledge by major shareholders, and 3.76% of the major shareholders of senior executives were reduced. It's just that the reduction is a bit much, and the other risks are not big.
At the operational level, the three-year average growth rate of operating income is 22%, and the three-year average growth rate of non-net profit is 5%. However, the latest results have reversed, and the company expects revenue of 737 million in the first quarter of '24, a year-on-year increase of 76%, and a net profit of 2.1-240 million, a year-on-year increase of +965%-1117%. Among them, the sales revenue of the interconnection chip product line was about 695 million yuan, a record high.
Finally, looking at the valuation, the rolling P/E ratio is 116 times, and the P/B ratio is 5.18 times. The performance fell by 65% in 23 years, and the valuation must not be low, so it depends on the performance reversal, which led to the decline in valuation.
At present, more than 20 institutions have made predictions, and the company's 24-year profit is expected to be between 1.078 billion and 1.543 billion, the company's current market value is 56 billion, and the average value of 1.36 billion corresponds to more than 40 times the price-earnings ratio.
5. BIWIN Storage
The 22-year IPO listed in the 23-year performance report showed a loss of 605 million.
From a risk perspective, the three-year total cash flow from operating activities is -105%, which is very poor, and the company has no goodwill, no pledge by major shareholders, and no major executives to reduce their holdings. The risk point is cash flow, which is the company's bloodline, and poor data means that the company's ability to continue operations is poor.
In the second year of listing, there was a large loss, but fortunately, the first quarter of 24 years was good, with an estimated revenue of 1.7-1.8 billion yuan in the first quarter, and a net profit of 1.5-180 million yuan attributable to the parent company, a year-on-year increase of more than 200%, and the reason for the growth in performance was the recovery of the industry and the price increase.
The valuation still depends on the future performance, the current market value is 19 billion, and the agency predicts that the company's 24-year profit will be between 377 million and 749 million.
6. Demingli
The company has a certain market share in the field of mobile storage such as memory cards and storage disks in the world, and it has also been listed for 22 years, and its performance has declined when it is also listed.
From the perspective of risk, the three-year total cash flow from operating activities is -84%, which is very poor, the company has no goodwill, no pledge by major shareholders, and the change in shareholding of major shareholders of senior executives is -2.44%, which is a large reduction in holdings. The risk lies in cash flow and the reduction of major shareholders' holdings.
At the operating level, the three-year average growth rate of operating income is -81%, and the three-year average growth rate of non-net profit is 5%.
The industry cycle is down, and the company's performance is not good. In 2023, the company's product revenue structure will be 1.03 billion yuan for mobile storage, 690 million yuan for solid-state drive products, and 46.07 million yuan for embedded storage products. The gross profit margin in the four quarters was 5.9%, -1.7%, 5.9% and 32.6% respectively, and the profitability of the memory industry took the lead in rebounding at the bottom.
The forecast data for the first quarter of '24 is bright, and it is expected that the revenue in the first quarter of '24 will be 8-850 million yuan, a year-on-year increase of +164.92%-181.48%, and the net profit attributable to the parent company will be 186-226 million yuan, a year-on-year increase of 524.81%-616.17%.
The valuation situation also depends on the future performance level, the agency predicts that the company's 24 profits are in the range of 154 to 850 million, with an average value of 605 million, and the current market value is 13.6 billion, and the average value corresponds to a price-earnings ratio of 23 times, and the valuation is not high.