CITIC SEC: Continues to be optimistic about storage demand exceeding expectations, and supply shortage will continue until the first half of 2027.

Recently, CITIC SEC released a research report on the storage industry, mentioning that since February, the performance and guidance of companies such as SK Hynix has exceeded expectations, NAND first-quarter contract prices have increased, and domestic module manufacturer Biwin Storage Technology has announced better-than-expected performance for January and February. This further validates the high level of prosperity in the storage industry. The industry continues to be optimistic about the unexpected demand for storage, and it is expected that the industry's supply shortage will continue until the first half of 2027. The key recommendation is on storage module companies, storage manufacturers, and design companies closely related to manufacturers with strong short-term performance breakthrough potential. 1. Price Review in February 2026 (Bloomberg, CFM Flash Market, TrendForce) 1) DRAM: After experiencing a significant increase in January, the increase in spot and contract prices for DRAM in February slowed down. According to Bloomberg, the spot price of mainstream particles in February ranged from -3% to +12% compared to the previous month; DDR5-8Gb/DDR4-8Gb contract prices increased by +4% / +8%. 2) NAND Flash: In February, the price of NAND Flash continued to rise rapidly compared to the previous month, with a relatively moderate increase. According to Bloomberg, the spot price of mainstream particles in February increased by +10% to +26% compared to the previous month, while contract prices increased by +37% to +67%. 3) Modules: In February, the spot prices of DDR4/5 memory sticks remained stable compared to the previous month, SSD prices increased by 0% to +13%, and mobile storage increased by +10% to +25%; DDR5 memory sticks contract prices increased by +4% to +18% compared to the previous month, DDR4 prices stabilized; SSD prices increased by +6% to +18%. (Note: Due to significant fluctuations in spot market prices and shortened negotiation cycles for contracts, there may be differences in storage prices from different sources) 2. Price Outlook (TrendForce Mar. 2026) 1) DRAM: It is expected that traditional DRAM contract prices will increase by 90% to 95% in Q1 (not adjusted); at the end of February, according to Korean media sedaily, Samsung Electronics and SK Hynix have notified customers that they will continue to significantly increase DRAM prices in the second quarter of 2025; according to Taiwanese media"PCDIY!", SK Hynix has notified customers of a price increase after the Chinese New Year, with DDR5 particles expected to increase by 40% in the second quarter of 2026. 2) NAND Flash: Due to the strong demand for AI servers and severe imbalance between supply and demand, manufacturers are strongly willing to increase prices, with an overall increase of 85% to 90% in contract prices for the first quarter (previously expected 55% to 60%). 3) Niche Storage: In terms of NOR Flash, Taiwanese manufacturers are gradually reducing the capacity of small and medium-capacity NOR Flash, leading to a convergence of NOR capacity and supply-demand improvement. We expect NOR Flash to continue to rise in the first half of 2026, with an overall increase of more than 20% in the first quarter, and a greater increase in the capacity of small and medium NOR. In SLC NAND Flash, overseas manufacturers such as Micron, SK Hynix, and Samsung are reducing supply, and we expect prices to rise in the first half of 2026 under supply constraints, approaching the levels of mainstream TLC/QLC products. 3. Overseas Manufacturers' Demand Judgments SK Hynix: The company expects a year-on-year increase in demand for DRAM bits of over 20% in 2026, and an increase in demand for NAND bits of 15% to 20% (high-teens). The company has only about four weeks of inventory for DRAM and NAND in 2026, and the demand of all customers cannot be fully met. SanDisk: The company expects a growth in data center bit demand of over 60% in 2026. SK Hynix: The company expects long-term demand for NAND bits in the NAND market to grow at a compound annual growth rate of about 20%. HyperScaler LTA negotiations have been extended to 2027-28. The company's guidance for the fourth quarter of fiscal year 2025 (first quarter of calendar year 2026) revenue growth is between 55% and 72%, exceeding market expectations. 4. Performance Expectations for Domestic Storage Manufacturers Biwin Storage Technology: The company expects revenue to be between 4 to 4.5 billion yuan in January and February, an increase of +340% to 395% year-on-year; net profit attributable to the parent company is expected to be between 1.5 to 1.8 billion yuan, an increase of +922% to 1086% year-on-year, non-GAAP net profit attributable to the parent company is expected to be between 1.35 to 1.6 billion yuan, excluding share-based payments, net profit attributable to the parent company is expected to be between 1.53 to 1.83 billion yuan, exceeding market expectations. Risk Factors: AI CAPEX of overseas CSP manufacturers falls short of expectations; weakening downstream demand for consumer electronics; insufficient increase in storage prices; intensifying industry competition; risks of technological innovation; risks of international trade frictions, etc. Investment Strategy: Continued optimism about the unexpected demand for storage, expected industry supply and demand imbalance to continue until the first half of 2027. Key recommendations: 1) Storage module companies with strong short-term performance breakthrough capabilities; 2) Storage design companies: Continuously recommend storage manufacturers and design companies closely related to manufacturers.