The 2022 results fell short of our expectations
Revenue in 2022 was 53.491 billion yuan, +5.0% year on year; net profit of the mother was 827 million yuan, -49.4% year on year. Corresponding to 2H22, revenue was 29.207 billion yuan, +3.0% year on year; net profit of 2H22 was 488 million yuan, -60.2% year on year. The company's performance fell short of our expectations, mainly due to delays in property sales and delivery due to the pandemic. The company's income from changes in the fair value of financial assets in 2022 was $202 million ($1,212 million in 2021). Regardless of this impact, the company's 2022 performance was -7% year-on-year in a comparable manner.
Operating profits are relatively stable, and property sales are dragging down overall performance. 1) Revenue from the company's multimedia/intelligent system technology/new energy/smart appliances/modern service industries and other sectors in 2022 was -16%/+9%/+0.4%/+191%/-48%, respectively. 2) Regardless of the impact of the fair value of financial assets, the company's 2022 operating performance was -7% compared to the same period last year, mainly due to delays in property sales and delivery due to the pandemic. The company covers many sectors, but the profit-driven core sector, New Energy, and Skyworth Digital, a subsidiary, have maintained relatively rapid growth.
Household photovoltaics have become the core driver of growth, and 2023 is expected to benefit from a reduction in module costs. 1) The company developed industrial and commercial photovoltaic business based on household photovoltaics and grew into an important leader in the household photovoltaic circuit. In 2022, the company's new energy revenue was 11.934 billion yuan, +191% year on year; of this, 2H22 revenue was 7.728 billion yuan, +136% year on year. 2) Module prices rose in 2022, and the gross margin of the company's photovoltaic business was 7.4%, year-on-year - 4.6ppt. 3) We believe that in 2023, the company is expected to benefit from a reduction in component costs, a recovery in gross profit margin, a continuous increase in revenue from the combined increase in installed capacity, and the company's household photovoltaic business is fully profitable.
Skyworth Digital became the leader in smart terminals, and the TV business was affected by the domestic epidemic and overseas inventory removal. 1) The revenue of the subsidiary Skyworth Digital in 2022 was +11% year on year, and the net profit of the parent company was +95% year on year. Skyworth digital set-top boxes are ranked first in the industry among radio and television network operators. The broadband business continues to break through globally. VR business products are sold in Europe, America, East Asia, etc., and the Pancake1 Pro series will be released in the future. 2) In 2022, the company's domestic/overseas TV revenue was -24%/-15%, respectively, and Kukai System's revenue was +11% year-on-year.
Development trends
In 2023, we expect that the company's traditional home appliance business is expected to achieve restorative growth; the PV business will maintain a high growth rate with the industry, and there is strong certainty that profits will rise under the declining trend of module prices. At the same time, we are optimistic that the growth potential of the subsidiary Skyworth Digital Smart Terminal and Broadband Equipment Circuit will be unleashed.
Profit forecasting and valuation
We keep the company's 2023-2024 profit forecast unchanged. The current stock price corresponds to 5.4x/4.1x 2023/2024e P/E. Considering the recent overall reduction in Hong Kong stock valuations, based on the 2023 SOTP valuation, we lowered our target price by 16% to HK$5.61, corresponding to 7.5x/5.7x 2023/2024e P/E, which has 38% room for improvement over the current stock price.
risks
The decline in module prices fell short of expectations; industry competition increased risks; the company's photovoltaic business expansion fell short of expectations; panel costs rose and there was a risk of chip shortages.