Event

On February 27, the company disclosed the announcement of the 2024 annual performance express report, and the company is expected to achieve revenue of 2.323 billion yuan in 2024, a year-on-year increase of -0.66%.

Investment Highlights

At the end of 2024, the orders in hand were 2.406 billion, and the orders in hand remained high for five consecutive quarters. In the first half of 2024, the semiconductor industry has gradually recovered, thanks to the company's unique business model, that is, in principle, there is no risk of product inventory and no application boundaries, and the company's business situation has rapidly turned around since the second quarter. The company's operating income in the second quarter of 2024 returned to the level before the impact of the industry cycle year-on-year, and the operating income in the third quarter of 2024 hit a new high in the third quarter of the previous year, with a year-on-year increase of 23.60%, and the revenue in the fourth quarter increased by more than 17% year-on-year, and the annual operating income is expected to be basically the same as in 2023. In the second half of 2024, the company's chip design business revenue increased by approximately 81% year-on-year, intellectual property licensing business revenue increased by approximately 21% year-on-year, and mass production business revenue decreased by approximately 4% year-on-year. In the fourth quarter of 2024, the company's chip design business revenue increased by approximately 81% year-on-year, intellectual property licensing fee revenue decreased by approximately 28% year-on-year, and mass production business revenue increased by approximately 32% year-on-year, reflecting the company's revenue was affected by the industry downcycle late and recovered growth earlier.

As of the end of 2024, the company's orders are in good condition, with orders in hand of 2.406 billion yuan, a further increase of nearly 13% from 2.138 billion yuan at the end of the third quarter, and orders in hand have remained high for five consecutive quarters. From the perspective of new orders, the company signed more than 940 million yuan of new orders in the fourth quarter of 2024, and the total amount of new orders signed in the second half of 2024 increased by more than 38% compared with the first half of 2024, increased by more than 36% year-on-year compared with the second half of 2023, and increased by more than 66% compared with the first half of 2023 under the influence of the downward cycle of the semiconductor industry and destocking, laying a solid foundation for the company's future business expansion and performance transformation.

Large computing power promotes the ecological development of the IP industry, and chiplet technology accelerates the layout. As an enterprise that relies on independent semiconductor IP to provide customers with platform-based, all-round, one-stop chip customization services and semiconductor IP licensing services, the company has independent and controllable graphics processing IP (GPU IP), neural network processor IP (NPU IP), video processor IP (VPU IP), digital signal processor IP (DSP IP), image signal processor IP (ISP IP) and display processor IP (Display Processor). IP) and more than 1,600 mixed-digital-analog IP and RF IP. Based on its own IP, the company has a wealth of software and hardware chip customized platform solutions for artificial intelligence (AI) applications, including real-time online (Alwayson) spatial computing devices such as smart watches and AR/VR glasses, high-efficiency device-side computing devices such as AI PCs, AI mobile phones, smart cars, and robots, as well as high-performance cloud-side computing devices such as data centers/servers. In order to comply with the trend of SoC (system-on-a-chip) development to SiP (system-in-package) driven by the demand for large computing power, VeriSilicon is taking the concepts of "IP as a Chiplet", "Chiplet as a Platform" and "Platform as an Ecosystem" as the guiding principles for action, from interface IP, chiplet chip architecture, advanced packaging technology, and AIGC and smart travel solutions, and continue to promote the research and development and industrialization of the company's chiplet technology and projects. Based on the company's unique Silicon Platform as a Service (SiPaaS) business model, the company's main business applications include consumer electronics, automotive electronics, computers and peripherals, industry, data processing, Internet of Things, etc., and the main customers include chip design companies, IDMs, system manufacturers, large Internet companies, cloud service providers, etc.

Empower the growth of non-chip customer groups such as system vendors, large Internet companies, and cloud service providers. The company's revenue from non-chip customer groups such as system vendors, large Internet companies and cloud service providers accounts for about 40% of the overall revenue. In recent years, system vendors, Internet companies and cloud service providers have increasingly begun to design their own brand chips due to cost, differentiated competition and other reasons, and most of these enterprises will seek cooperation with semiconductor IP companies or chip design service companies due to their relative lack of chip design capabilities, resources and experience. The company has advanced chip customization technology, rich IP reserves, and design capabilities that extend to software and system platforms, and has become one of the preferred chip design service partners for these types of customers. On the one hand, the revenue growth brought by these types of customers is reflected in the fact that more companies have entered the field of chip design, which has generated more demand for semiconductor IP, which has driven the growth of the company's IP licensing business; In addition, some system manufacturers, Internet companies and cloud service provider customers of the company's chip customization services have entered the mass production stage, and the business growth of customers will directly drive the growth of the company's mass production business revenue. The growing market for Internet video-related applications, such as 4K HD live streaming, online meetings, and cloud gaming, requires high-density video decoding and encoding in data centers. VeriSilicon's data center video transcoding platform can greatly improve the video processing capacity of data centers and reduce overall power consumption and cost. VeriSilicon's latest generation of video processor IP series VC9800 series IP features high-performance, high-throughput, server-level multi-stream encoding and decoding capabilities, supporting up to 256 streams and is compatible with all major video formats, including VVC, a next-generation advanced format, to meet the advanced needs of next-generation data centers, including video transcoding servers, AI servers, cloud desktops, and cloud gaming. At present, the video processor IP technology has been recognized by many customers, including 3 of the top 5 Internet companies in China and 12 of the top 20 cloud service providers in the world. VeriSilicon's data center video transcoding acceleration solution can provide customers with high-performance video transcoding chips and open-source software integrated solutions based on VeriSilicon's own IP, which are widely used in video acceleration cards, streaming media and video-on-demand, data center servers and security surveillance video systems, etc., providing customers with high-performance video processing while greatly reducing overall power consumption and cost. At present, the company's video transcoding platform project is progressing smoothly, and the first-generation platform has completed the research and development work in the second quarter of 2021, and has been adopted by many customers in the form of IP licensing and one-stop chip customization business, and has completed adaptation and shipped one after another. VeriSilicon's second-generation IP-based video transcoding platform has been completed with a one-stop chip customization project (including hardware and software co-verification), which enhances the video transcoding capability of different formats to 8K, adds support for AV1 format, adds AI processing power, and adds high-performance multi-core RISC-V CPU and hardware encryption engine.

We will continue to promote the development of RISC-V and other ecological constructions, and promote the industrialization of technologies. RISC-V is a free, open instruction set architecture. With the development of the Internet of Things era, scenario requirements are fragmented and differentiated, bringing great demand for customized, modifiable, low-power, and low-cost RISC-V CPU. At present, a large number of integrated circuit design companies around the world have used RISCV in their chips, and have successfully expanded RISC-V technology from embedded scenarios to industrial control, autonomous driving, artificial intelligence, communications, data centers and other scenarios that require higher computing power. As a leading chip design service and semiconductor IP supplier, VeriSilicon has made an active layout in the RISC-V field. In September 2018, the China RISC-V Industry Alliance (CRVIC) was established by the Shanghai Integrated Circuit Industry Association (SICA) as the first chairman unit, and as of the end of September 2024, there are 195 member units. Co-hosted by the China RISC-V Industry Alliance and VeriSilicon, the Dishui Lake China RISCV Industry Forum has been successfully held for four sessions. At each conference, about 10 local companies release more than 10 new domestic RISC-V chips, which are widely used in consumer electronics, smart home, wearable devices, communications, automobiles, industrial control and other fields. VeriSilicon has promoted the development of the RISC-V application ecosystem by optimizing the synergy between third-party RISC-V IP and VeriSilicon's own market-proven IP and integrating it into the company's platform or system solutions, such as VeriSilicon's launch of a hardware development board based on RISC-V chips, the VeriHealthi wearable health monitoring platform solution, and based on VeriHealthi The platform has launched the "VeriSilicon Cup" National Embedded Software Development Competition for colleges and universities across the country, which will help promote the development of the RISC-V ecosystem and the cultivation of talents. In addition, the company has also made equity investments in the RISC-V field.

Investment Advice

We expect the company to achieve revenue of 23/29/3.5 billion yuan in 2024/2025/2026, and net profit attributable to the parent company of -6/0.1/100 million yuan respectively, and the current stock price corresponds to 20 times, 16 times, and 13 times PS in 2024-2026 respectively, maintaining a "buy" rating.

Risk Warning:

The risk of a sharp decline or loss in performance, core competitiveness risk, operational risk, financial risk, industry risk, and macro environment risk.