Zhaoyi Innovation (603986) Interim Report Comments: Q2 Performance Exceeds Expected Storage Cycle Bottoms Future Growth Expected

Zhaoyi Innovation (603986) Interim Report Comments: Q2 Performance Exceeds Expected Storage Cycle Bottoms Future Growth Expected

Q2 performance exceeded expectations, and the storage cycle is expected to bottom out. Maintaining the “strong recommendation” rating company released its 2019 Interim Report: H1 in 2019 to achieve operating income12.

2 billion (+8.

63%), net profit attributable to mother 1.

8.7 billion (-20.

24%), of which Q2 achieved revenue of 7.

4.5 billion (+31.

98%), net profit attributable to mother 1.

4.8 billion (+1.

43%), exceeding market expectations.

We believe that the second quarter is significantly warmer, indicating that the storage cycle has basically bottomed out. As an internal storage leader, coupled with highly competitive MCUs and complementary sensor products, it is expected to fully benefit from the domestic replacement and the rapid development of the Internet of Things.
It is expected that the company’s net profit attributable to the parent in 2019-2021 will be 4 respectively.

90/6.

68/8.

93 trillion, corresponding to EPS 1.

53/2.

08/2.

79 yuan, corresponding to PE is estimated to be 75/55/41 times, maintaining the “strongly recommended” level.

The product structure is constantly optimized, the product line is continuously enriched, and the proportion of high and medium capacity in NOR is continuously improved. The company’s existing business layout is divided into three major directions: storage, Internet of Things, and sensors.

The company’s Flash continues to develop new products and technology upgrades. The cumulative expansion of NOR Flash has exceeded 10 billion. New products have been launched for the Internet of Things, wearables, industrial 合肥夜网 control and automotive electronics., Will further launch 24nm process products; In MCU products, the company has expanded more than 300 million units, developed new products for high-performance, size and IoT applications and obtained extensive market applications, and the company successfully developed the world’s firstRISC-V MCU GD32V product series, to help meet the needs of future fragmented IoT applications.

In addition, the company successfully completed the acquisition of Sili Micro, entered the field of optical fingerprint sensors, and created integrated solutions for storage, control, sensing, interconnection and edge computing.

H1 R & D expenses increased by 74 in ten years.

42%, constantly improving core competitiveness, consolidating market share, H1 R & D expenses in 2019 will even increase significantly by 74.

42%, reaching 1.

The company has always maintained a high level of research and development investment, and has launched a series of technology and cost advantages. The company’s core competitiveness has been continuously improved. In the NOR Flash market, the company ranked fifth in the world in 2018 with a market share of10.

9% (+0.

4 points); in the serial NOR Flash market, the company ranked third in the global ranking; in the Chinese MCU market, the company ranked third in 2018 with a market share of 9.

4% (+3.

4pct), second only to ST and NXP.

We believe that the global storage cycle has basically bottomed out, and the company has made breakthroughs in storage and MCU, which will be beneficial to the recovery of downstream market demand in the future.

Risk reminder: R & D progress is less than expected, product price fluctuation risk, trade war worsens