Pan Yu of Tianfeng Securities Co., Ltd. recently conducted research on Aojie Technology and released the research report "Q3 Single Quarter Revenue Hits a Record High, Layout Wearable Devices Provide New Growth Power". This report gives a buy rating to Aojie Technology, with the current share price of 67.83 yuan.

Aojie Technology (688220)

Event: The Company releases its Q3 2023 report. 23Q3 Company realized operating income of 0.787 billion yuan, up 56.57% YoY, realized net profit of 0.09 billion yuan, the year-on-year loss amount narrowed by 7.77%, and realized non-return net profit -0.113 billion yuan, the year-on-year loss amount narrowed by 14.67%.

Comments: 23Q3 revenue increased significantly year-on-year, with revenue and gross profit margin increasing quarter by quarter. Inventory turnover days in the third quarter were 252 days, 105 days less than 357 days in the first quarter. The company adjusted the fund-raising layout of smart wearable devices, issued an equity incentive plan to highlight long-term stable development confidence, optimistic about the cycle recovery and new product release to help the company's long-term growth. The year-on-year increase in 23Q3 revenue was mainly due to the substantial increase in chip product sales in the third quarter.

Adjust some IPO fundraising projects and lay out smart wearables to provide new drivers for the company's long-term growth. On October 27, 2023, the company announced that it intends to change the use of RMB 0.169 billion yuan of the company's initial public offering fund-raising investment project "intelligent IPC chip design project", and the changed fund-raising will be used for "a new generation of intelligent wearable equipment software and hardware platform development project". In recent years, due to the smart IPC market environment and the competitive landscape has undergone major changes: 1) the policy-driven effect of the original security industry has weakened; 2) it is difficult to achieve large-scale sales in the short term; 3) product gross margin continues to decline. This delayed the pace of the company's product promotion and affected the efficiency of the use of raised funds. Although the company is still optimistic about the application prospect of intelligent IPC for a long time, based on the principle of prudence and reasonable use of raised funds, the company changed all the remaining raised funds of the project to "the development project of software and hardware platform for new generation intelligent wearable equipment". Smart wearable products have a broad market space and can enhance the company's overall competitiveness in the smart wearable market. The new project will develop a complete set of terminal software and hardware solutions for wearable devices based on smart watches, providing a package from chip to hardware design to complete software SDK. The company expects to achieve mass production by September 2026.

full-format cellular baseband technology is globally scarce, the company's 4G smartphone chip successfully streamed, 5G IoT chip mass production is expected to jointly bring future performance growth. Cellular baseband technology covers signal processing, high-performance analog/RF circuits, communication protocol stacks, low-power circuit design and other aspects. It is one of the most advanced and difficult technologies in the field of chip design. The technical barriers are extremely high. At present, only a few companies in the world have this capability. The company's cellular baseband technology has been fully covered 2G-5G full-standard, is one of the few domestic enterprises with the development of 5G baseband communication chip strength. In the field of cellular Internet of Things market, the company has become an important supplier of domestic and foreign mainstream module manufacturers such as mobile communication, Japan Sea Intelligence, Fang Technology, high-emerging, U-bloxAG, etc. The mass production version of 4G smart phone chip has been successfully streamed and returned in 23Q1.23Q2 has completed the main index test and formed the client Demo engineering prototype. From the internal test results, it meets the design expectation and the main performance has competitive advantages. The customer support work will continue to be strengthened in the future to help customers complete the terminal scheme design one after another. The company expects to mass produce in the first half of next year. As of June 2023, the first 5G eMBB chip is actively promoting mass production.

5G plus AI forward-looking layout, synchronized on both sides of the cloud. In the field of AI, the company is one of the few chip design companies in China that already have the layout of "cloud side" and "end side" at the same time. On the cloud side, with the ability of ultra-large-scale high-speed SoC chips under advanced technology, large-scale artificial intelligence chips are customized for customers and successfully mass-produced. On the end side, the company integrated the existing self-research ISP and end-side AI chip architecture technology, launched the first intelligent IPC chip project, and has completed the project flow, and with the industry's leading enterprises to promote cooperation.

All-round layout of wireless communication technology, chip customization and IP licensing services are growing rapidly. Since its establishment, the company has always focused on various wireless communication technologies. While completing the accumulation of cellular baseband technology from 2G to 5G, the company has also mastered a variety of non-cellular wireless communication technologies such as WiFi, Bluetooth, LoRa, global navigation and positioning, and built a rich and complete wireless communication chip research and development system, it has a large number of self-developed IP in signal processing, high-performance analog/RF circuits, communication protocol stacks, low-power circuit design and other aspects, and has mastered a number of core design technologies such as ultra-large-scale digital-analog hybrid integrated circuits, RF chips, baseband RF integrated integration technology and ultra-low power SoC chip design. 2023H1 chip customization business revenue reached 0.12 billion billion yuan, up 111.42 percent year-on-year; IP licensing business revenue reached 0.02 billion billion yuan, up 390.65 percent year-on-year. As of June 2023, the company still has a number of orders for chip customization and IP licensing business in progress, laying the foundation for subsequent revenue realization.

The company attaches great importance to research and development, excellent, stable research and development team for the company to force all kinds of wireless communication market to establish a solid foundation. 2023Q3 Research and development investment totaled 0.258 billion yuan, accounting for 32.81 of operating income. 2023H1 in the research project a total of 18 projects, more streaming projects, covering nearly 20 chips, streaming costs increased by 48.1517 million yuan compared to the same period last year. As of June 2023, the number of R & D personnel increased by 117 compared with the same period last year, including 5 doctors and 81 masters, accounting for more than 70%. The main members of the R & D team have many years of experience in well-known enterprises in the wireless communications industry, and have deep technical accumulation and mass production experience in system architecture, signal processing, communication protocol stack, and digital, analog and RF circuit design.

release of equity incentive plan (draft), the largest buyback of the board to show confidence, deep binding core research and development personnel. On October 27, 2023, the company issued the "2023 restricted stock incentive plan (draft)". the number of restricted shares to be granted to the incentive target is 9.5 million shares, accounting for about 2.27 of the company's total share capital. the 2024/2025/2026 performance appraisal target is based on the company's 2022 operating income, with the growth rate of operating income not less than 35%/60%/90%. On February 14, 2023, the company announced that the company will repurchase shares at a price of no more than 88 yuan per share (inclusive), with a total repurchase fund of no less than RMB 500 million yuan (inclusive) and no more than RMB 1,000 million yuan (inclusive). The repurchased shares will be fully used for employee stock ownership plans or equity incentives at an appropriate time in the future, and will be transferred within three years after the results of the implementation of the share repurchase and the announcement of the share change. The company's repurchase is the largest of the single repurchase programs disclosed so far by a company listed on the board.

investment advice: the company continues to invest in high-intensity research and development, and there is uncertainty in the recovery of consumer electronics. we lowered our profit forecast and expected the company's net profit attributable to its parent in 2023/2024/2025 to -4.63/-3.10/-0.003 billion yuan from -2.48/0.50/yuan to maintain the company's "buy" rating.

Risks: technology iteration and substitution risks, lower than expected downstream demand, lower gross margin due to market competition, and loss of R & D technicians

Securities Star Data Center calculated based on the research data released in the past three years, Hua 'an Securities Zhang Tian researcher team on the stock more in-depth research, the average forecast accuracy in the past three years is 62.82, its forecast 2023 attributable net profit for loss 0.337 billion.

The latest profit forecast is as follows:

the stock has been rated by six institutions in the last 90 days, with four buying ratings and two overweight ratings; the average institutional target price in the past 90 days is 92.7.

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