more than 20 years of independent research and development, once bright sword world know. Godson Zhongke has a long history. The Godson series CPU was developed in the Institute of Computing of the Chinese Academy of Sciences in 2001. The company was established in March 2008. It began market-oriented operation in 2010. It launched its own instruction system LoongArch (Godson Architecture) in 2020 and moved towards an open market in 2022.

the company's main business includes 1) chip products: Loongson 1, 2, 3 three series of processor chips and bridge chips and other supporting chips, mainly used in industrial control and information technology two major fields. 2) Solution: Based on the open Loongson ecosystem, it provides downstream enterprises with various development boards and software and hardware modules based on the Loongson processor, and provides complete technical support and services. At present, the company is in the second round of transition, hardware, software product construction has formed a phase of significant progress. 23Q4 has introduced 3A6000 desktop CPU with performance comparable to that of Intel Core™ 10 generations, and will soon break through the dragon chain technology and GPGPU technology of NVLink. The LoongArch instruction set developed by the company has obtained the exclusive instruction set architecture logo (No. 258) of an international authoritative organization. The ecological construction has achieved initial results and has become the world's top-level instruction set architecture of open source software alongside X86 and ARM.

Xinchuang market bottomed out and recovered, and the open market waited for flowers to bloom. The company's first round of transformation was 2013-2015, during which it got rid of its dependence on project revenue and opened up the policy market. In 2022, due to the stagnation of the policy market represented by e-government, resulting in a decline in the company's information application sales revenue, the company decided to carry out the second round of transformation in 2022-2024, and strive to get rid of the dependence on the policy market, open a fully competitive open market. We are optimistic that the company will usher in a period of rapid growth based on the resonance of the trust market and the demand of the open market:(1) with the gradual improvement of the 23Q4 policy market, the policy market space is still considerable. the company's prospectus discloses that the global PC shipment volume is about 0.3 billion units per year, of which the Chinese market is about 50 million units per year, and the computer market size in the key information infrastructure field is expected to reach 10 million units per year;(2) The Russian market has opened up new demand for Godson. 23Q4 has already made customer progress and operating system adaptation. More space in "the belt and road initiative" is worth looking forward to. (3) With the launch of 23Q4 3A6000 blockbuster products, Asustek Computer has launched a consumer motherboard supporting Godson 3A6000 processors-XC-LS3A6M. We are optimistic that the company will take advantage of AI PC opportunities to enter the open market and expand its open market strength, the company aims to open market revenue of 30% by 25 years.

"hitting the water in the middle stream": in the second round of transition period, the working policy of combining point with face and vertical and horizontal was formulated, and the new style of play set sail for a new journey. On the basis of the improvement of the cost performance of general CPU chips and the improvement of software ecology ("surface"), the company has focused on the deployment and formation of four "point" directions: MCU for hardware and electronic applications, SoC for printer applications, storage servers and cloud terminal system solutions. Select the key applications with low software ecological barriers, drive chip sales ("horizontal") through solutions ("vertical"), give full play to the advantages of independent research and development, and achieve market competitiveness. At present, in the printer market, the company relies on print driver technology to crack the printer driver problem that has plagued Linux desktops for decades, and has surpassed the desktop office ecological level of X86 and ARM in the printer field through continuous independent innovation. In the server market, the company began to focus on its efforts. The sales volume of server solutions in 23H1 solution business increased significantly, with revenue exceeding 0.1 billion yuan. 23Q1-Q3 Company's server products are mainly 5000 series. In the future, the company plans to introduce 16-core 3C6000, 32-core 3D6000 and 64-core 3E6000 to improve CPU core performance and memory access bandwidth, which is expected to further strengthen cost-effective advantages and competitiveness.

investment advice: we expect the company's operating income from 2023 to 2025 to be 6.95/10.91/1.51 billion yuan, corresponding to the current PS multiple of 54/34/25X. Considering that the company as a domestic scarce independent instruction set CPU design company, the second round of transition period relying on the "point-to-surface combination, horizontal and vertical combination" approach gradually into the open market, is expected to open up the second growth space, so can enjoy a certain valuation premium, the first coverage to give a "buy" rating.

risk tips: the risk of a sharp decline in performance or loss, market competition risk, macro environmental risk, the risk of intellectual property disputes.