Shenzhen Longsys Electronics Co Ltd_ 1Q25_ Off the Call

Summary of Shenzhen Longsys Electronics Co Ltd Conference Call Company Overview - Company: Shenzhen Longsys Electronics Co Ltd - Stock Code: 301308.SZ - Industry: Technology Semiconductors - Region: Asia Pacific Key Points Financial Performance - 1Q25 Revenue: Rmb4.26 billion, down 4.4% YoY but up 1.5% QoQ due to continued pricing pressure [10][14] - Net Loss: Narrowed to Rmb202 million in 1Q25 from Rmb330 million in 4Q24, attributed to better cost control and reduced inventory write-downs; breakeven expected in 2Q25 [10][12] - Price Target Adjustment: Revised down from Rmb125.00 to Rmb100.00 based on residual income model, reflecting a modest upside potential [2][11] Market Conditions - Investor Sentiment: Market has priced in a downcycle scenario amid macro uncertainties, with the stock trading at trough multiples [3][11] - Tariff Impact: Limited direct impact from tariffs as most supplies are from non-US origin; US customers contribute a low to mid single-digit percentage of revenue [5][10] - Pricing Trends: Management expects a weaker pricing trend in 2H25 due to demand pull-in in 1H25 [3][6] Future Outlook - 2Q25 and 2025 Outlook: Management remains positive on overall pricing trends, with expectations of a ~10% QoQ increase in eMMC/UFS and 3-8% for SSDs [6][12] - Drivers for Growth: Domestic AI capex growth and supply discipline are expected to support market growth [6][10] - Cautious Approach: Analysts remain cautious about 2H25 pricing forecasts due to uncertainties in demand outlook [17] Business Strategy - Diversification Plans: Longsys plans to leverage its Brazil-located Zilia fab to mitigate tariff risks [5][12] - New Business Expansion: Enterprise business grew 200% YoY in 1Q25, indicating strong execution and synergies across segments [12][14] - Customer Commitments: Tier 1 customers are willing to commit to large orders under TCM and PTM models, which could stabilize growth [12][17] Earnings Revisions - Revised EPS Estimates: 2025-2027 EPS revised down by 38%, 17%, and 15% respectively due to cautious outlook on memory cycle [15][23] - Gross Margin Adjustments: SSD segment gross margin assumptions revised down as the company prioritizes market share over profitability [15][23] Additional Insights - Supply Discipline: Supply discipline may last longer amid macro uncertainties, with healthy inventory levels among domestic customers [17] - Long-term Growth Potential: Longsys' self-help strategies, including overseas expansion and new business models, are expected to enhance mid/long-term growth and margin profiles [11][17] Conclusion Shenzhen Longsys Electronics Co Ltd is navigating a challenging market environment with cautious optimism. While facing pricing pressures and macro uncertainties, the company is focusing on diversification, customer commitments, and strategic growth initiatives to enhance its long-term prospects.