The Zhitong Finance App learned that Dongwu Securities released a research report stating that the two main lines of storage “price increase flexibility” and “localization” are clear: 1) Since the 23Q1 Micron review incident, the “storage localization” logic was ignited, and the market began to pay attention to module links with domestic replacement logic; 2) the 23Q3 storage industry cycle has bottomed out and the inflection point is clear. Prices of mainstream products are rising. The 24q1NandFlash contract price increased 23%-28%, and the module manufacturer 23Q4 has begun verifying “flexible storage performance due to price increases” Price transmission performance elasticity Q1 is expected to continue. The 24Q1 module factory's revenue and profitability are expected to increase further month-on-month.

The main views of Dongwu Securities are as follows:

“Main line of price increase” - April entered the performance realization period, focusing on module manufacturers based on strategic low inventory price increases to bring about a sharp margin of profit:

Demingli released its 23rd annual report. Q4 revenue was 800 million yuan, doubling the month-on-month, with a gross profit margin of 33% and net profit of 140 million yuan. Net profit reached a record high of over 17%, and profitability improved dramatically; Jiang Bolong's revenue in '23 broke 10 billion yuan, 23Q4 expected revenue of 3.5 billion yuan to 4 billion yuan, an increase of more than 100% year-on-year, and net profit of 23 million yuan to 83 million yuan, turning a loss into profit for the quarter.

Baiwei Storage Performance Report 2023Q4 is expected to achieve revenue of 1.5 billion yuan, an increase of more than 87% year-on-year, an increase of more than 50% month-on-month, a month-on-month increase of more than 13 pcts, the company has sufficient on-hand orders, and continued development of major customers. The 24Q1 revenue and gross margin are expected to increase further month-on-month, and the operating situation continues to improve. Its target revenue for the 2024 equity incentive assessment will not be less than 5 billion yuan, and the total market value will reach or exceed 20 billion yuan for any 20 consecutive trading days in 2024, fully demonstrating the company's confidence.

From an inventory perspective, Baiwei Storage's 23Q3 inventory is 3.5 billion yuan, Demingli is 1.6 billion yuan, and Jiang Bolong is 4.9 billion yuan. The module factory's strategic low stocking is expected to bring great flexibility to its performance.

“Mainline of localization” -- demand for AI servers has exploded, focusing on “computing power+memory”:

1) There is strong demand for enterprise-grade SSD localization. Domestic core module manufacturers supported downstream customers for verification in 23 years, entered the order harvest period in 24, and had the opportunity to overtake cars in curves. It is recommended to focus on enterprise-level SSD products and R&D capability targets.

2) HBM plays a key role in improving the performance of AI chips. Nvidia and AMD launched a new series of H200 and MI300, and the HBM production capacity of major overseas manufacturers such as Samsung and Hynix continues to expand. Currently, HBM production capacity is monopolized by overseas manufacturers. Hynix and Micron have announced that their HBM production capacity in 24 years has been sold out, and localization is imperative. It is recommended to focus on those with HBM distribution capabilities and the layout of domestic HBMs.

Follow the subsequent price increases for niche products:

Dongwu Securities believes that niche storage DDR3, NOR, SLCNAND, etc. are expected to rise moderately. It is recommended to focus on Zhaoyi Innovation (603986.SH), Hengshuo Co., Ltd. (688416.SH), Dongxin shares (688110.SH), Pran shares (), Juchen shares (USD), etc., as well as Lanqi Technology, which benefits from DDR5 upgrades, increased penetration rate, and the core standard of interface chips. 688766.SH 688123.SH

Investment advice: It is recommended to focus on the storage industry's rebound in price increases, HBM layout, and targets related to localization

1) High-profit flexible module manufacturers with strategic low stocking: Demingli (001309.SZ), Baiwei Storage (688525.SH), Jiang Bolong (301308.SZ), etc.

2) AIHBM layout targets: Shannon Xinchuang (300475.SZ), Baiwei Storage (688525.SH), etc.

3) Localized storage targets with enterprise-grade SSD capabilities: Demingli (001309.SZ), Tongyou Technology (300302.SZ), Lanco Technology (300042.SZ), Wanrun Technology (002654.SZ), etc.

Risk warning: the price increase of storage products falls short of expectations, demand recovery falls short of expectations, etc.