Performance review
1H22 performance is in line with market expectations
The company announced 1H22 results: revenue of 1,960 million yuan, up 21.35% year on year; Guimu's net profit was 140 million yuan, up 381.16% year on year. Corresponding to 2Q22 revenue was 906 million yuan, an increase of 2.2% over the previous year; the net profit of the mother was 52 million yuan, an increase of 117.2% over the previous year. The company's 1H22 performance is in line with market expectations.
Development trends
Revenue from functional parts and precision structural parts increased steadily, and gross margin improved. 1H22's revenue from smart terminal functional parts and precision structural parts and module products increased by 32.05% year-on-year to 1,125 billion yuan. We judge that it was mainly driven by steady revenue growth from major international customers. At the same time, gross margin increased 5.61 ppt to 20.72% year on year. We expect the share of Android revenue to decline mainly due to low gross profit. Information storage revenue fell 20.59% year over year to $272 million, while gross margin stabilized at 23.71%. Looking ahead to 2H22, we expect that as the peak consumer electronics season approaches, the release of new products from international customers is expected to drive the company's functional and structural parts revenue to continue to grow.
Revenue from automotive electronics continues to grow at a high rate, and gross margin has declined steadily and slightly. Revenue from 1H22 new energy vehicle products increased 52.84% year-on-year to 548 million yuan. We judge that this is mainly due to the continued increase in shipments from major international customers and the increase in shipments of the company's ancillary products. In terms of gross margin, the gross margin of the automobile business fell slightly by 1.38ppt to 28.96% year on year, and remained stable overall. Looking ahead, the company said it will continue to strengthen cooperation and product development with end customers. On the one hand, it cooperates with existing international customers to expand the Thai factory and build a new German factory and the US factory; on the other hand, it continues to advance new products such as high-power wireless charging systems for new energy vehicles and core components for hydrogen fuel cells. We are optimistic that the company's future automotive electronics revenue will continue to grow rapidly, driven by increased shipments from major customers and the value of individual machines.
The overall cost rate was stable, and operating cash flow improved markedly. 2Q22 The company's various expense rates were basically stable. Among them, the sales/management/R&D expenses ratio was 2.4%/7.5%/8.7%, respectively. In terms of cash flow, operating cash flow as of 2Q22 was 284 million yuan, a sharp correction over the previous year (2Q21 was -112 million yuan). The company indicated that it was mainly due to an increase in sales repayments.
Profit forecasting and valuation
Considering the impact of the domestic epidemic on automotive electronics customer shipments, net profit in 2022 was lowered by 8.8% to 337 million yuan, keeping the 2023 profit forecast unchanged. The current stock price corresponds to a price-earnings ratio of 31.5 times/23.3 times 2022/2023. Based on optimism about the long-term growth prospects of the automotive electronics business, maintaining an outperforming industry rating and a target price of 18.00 yuan, corresponding to 36.5 times the 2022 price-earnings ratio and 27.0 times the 2023 price-earnings ratio, there is room for 15.9% upward compared to the current stock price.
risks
The impact of the pandemic has exceeded expectations; shipments from NEV customers in North America have fallen short of expectations; and Weber Precision continues to lose money.