1H22 performance is lower than we expected.
The company announced 1H22 results: revenue was 3.294 billion yuan, down 10.63% from the same period last year; net profit from home was 514 million yuan, down 20.23% from the same period last year, which was lower than we expected, mainly due to the decline in smartphone market shipments due to macro factors such as epidemic situation, inflation and geopolitics at home and abroad.
Trend of development
High-level CIS has made a breakthrough, using the industry's innovative single-chip integration technology. The company officially released GC32E1 (32MP) in August, using a 0.7 micron small pixel platform that can be used for high-end front-end cameras. According to the company, the product uses single-chip technology, which has lower cost and can effectively reduce heat dissipation problems than the mainstream stack in the market. At present, samples have been sent to the first batch of brand customers, and the company expects to achieve mass production by the end of the year. We believe that the biggest technical difficulty in the migration from low-pixel to high-pixel is the small pixel platform, the smooth launch of the company's 32MP means that the difficulty of the 0.7micron platform has been overcome, the follow-up research and development of high-end products based on 0.7micron will be accelerated, and high-pixel products are expected to gradually become the main driver of the company's revenue growth in the past 24 years.
2Q22 inventory is basically flat on a month-on-month basis, although the 3Q22 CIS industry is in a destocking cycle, we think the company is expected to show resilience through the cycle: 1) because the company's product structure is dominated by low-level CIS, and the company has a dominant position in the 2/5MP market share of more than 70%, has a certain pricing power. 2) low-level CIS has versatility and long life cycle, so when the demand is weak, compared with the high-pixel products whose parameters are constantly changing every year, the price reduction pressure of low-level CIS is relatively smaller. 3) the company continues to iteratively polish the product performance and reduce the die size, combined with the continuous decline in contract manufacturing costs, we think that the gross profit margin is expected to remain relatively stable.
Profit forecast and valuation
Due to the decline in the prosperity of consumer electronics, we reduced the revenue of 2022 Acme by 28.7% to RMB 65.78 billion in 2023, and the net profit by 29% to RMB 1.1.98 billion. The current share price corresponds to a price-to-earnings ratio of 44.1 / 38.3 in 2023. We believe that the company has a dominant position in the low-end CIS market and is under less pressure to reduce prices, while the high-level CIS breakthrough enables the company to grow for a long time. We maintain our outperforming industry rating, lowering our target price by 14.0% to 23.9 yuan, corresponding to 57.4 times 2022 price-to-earnings ratio and 49.9 times 2023 price-to-earnings ratio, which is 30.0% upside from the current share price.
Risk.
Display-driven price reduction, global COVID-19 epidemic uncertainty, decline in mobile phone shipments, exchange rate fluctuations and so on.