Affected by the decline in consumer electronics demand and the epidemic in the first half of the year, 1H22 fell short of previous expectations, Jingfang Technology released its 2022 mid-year report: revenue of 620 million yuan, down 10.67% year on year; net profit of 191 million yuan, down 28.70% year on year; net profit after deducting non-Gimo's net profit was 172 million yuan, down 27.54% year on year, lower than our previous expectations, mainly due to the decline in consumer electronics demand and the epidemic in the first half of the year. In the single quarter of 2Q22, the company achieved revenue of 315 million yuan, a year-on-year decrease of 13.77%, an increase of 3.31% over the previous year; it achieved net profit of 99 million yuan, a year-on-year decrease of 29.38% and an increase of 7.80% over the previous month.
On the gross margin side, the gross margin of 1H22 was 48.7%, down 3.3ppt from the previous year. We think this is mainly due to 1) the vehicle-mounted CIS production line is still in the process of continuous rise in production capacity and continuous optimization of production efficiency/cost control; 2) the impact of the epidemic on costs in production management, raw material supply, and cargo transportation.
The following events dragged down the company's net profit: 1) the decline in revenue due to the decline in consumer electronics markets such as mobile phones; 2) as a result of the merger of the Jingfang Technology Industry Fund and its holding subsidiaries, the scope of the company's merger changed, and sales/management/R&D expenses increased year-on-year; 3) Government subsidies confirmed for other benefits decreased compared to the same period last year (1H22 was 21.56 million yuan, 1H21 was 32.27 million yuan).
Development trends
The consumer electronics business is a drag on performance, and they are optimistic about CIS market demand and the release of automobile CIS production capacity under the Internet of Everything trend. In the short term, the decline in the global mobile phone boom dragged down company revenue. Overall mobile phone shipments in the domestic market fell 22% year on year in 1H22 (China Academy of Information and Communications Technology), and global smartphone shipments fell 9% year on year in 2Q22 (Canalys). However, we believe that AIoT products such as smart manufacturing/smart home/robotics/drones/AR/VR are expected to drive new demand for CIS in the long term. At the same time, we are optimistic about the revenue elasticity brought about by the continuous rise in production capacity in the CIS. As of 1H22, the investment progress of the 12-inch TSV production line raised funds in 2020 reached 60%. Large-scale mass production has been achieved and production capacity continues to rise. At the same time, the company has introduced leading automotive CIS such as Haowei Technology to form performance support for the automotive business.
The company actively invests in the industrial chain, and new businesses are progressing in an orderly manner. The company invested in Israel's ViSic to deploy automotive high-power gallium nitride technology. The latter is actively cooperating with well-known automobile manufacturers to develop gallium nitride devices and systems for high-power drive inverters of 800V and above. The company continues to promote new process development and mass production introduction for new products such as MEMS and filters, increase the scale of mass production of MLA optical devices, and promote the development and promotion of MLA products in the fields of smart headlights, human-vehicle intelligent interactive lighting, and machine vision. We believe that the company's industrial layout and new business expansion are expected to enter a harvest period in the future.
Profit forecasting and valuation
As the consumer electronics market continues to decline, we lowered our net profit in 2022 and 2023 by 20% and 24% to 598 million yuan and 801 million yuan. The current stock price corresponds to 26.6 times the 2022 price-earnings ratio and 19.9 times the 2023 price-earnings ratio. Maintaining an outperforming industry rating, considering the upward shift in the industry's valuation center, we maintain the target price of 26.31 yuan after exclusion, corresponding to 28.7 times the 2022 price-earnings ratio and 21.5 times the 2023 price-earnings ratio. There is room for an increase of 8% compared to the current stock price.
risks
Vehicle grade production line construction/automotive CIS market development fell short of expectations, and the consumer electronics market continued to decline.