North American customers, smart products and automotive businesses drive high 1Q23 performance, BYD Electronics released 1Q23 results: 1) revenue increased 26.0% year over year to RMB 6.4 billion, thanks to strong demand from North American customers and rapid growth in the new smart products and automotive intelligent system business; 2) gross margin further rose to 7.7% (up 1.5 percentage points over the previous month, up 2.2 percentage points year on year, thanks to continued recovery in capacity utilization and improved revenue structure), and net profit grew strongly as a result (up 155.0% year on year). Looking ahead, we expect the company's revenue structure to improve further, and the revenue share of North American customers, automotive intelligent system business, and new smart products is expected to increase further. We expect net profit for 23/24/25 to be RMB 2.6 billion/3.6 billion/4.8 billion yuan; maintain the target price of HK$30.00, based on 23.2x 23EPE, which is higher than Wind's consensus forecast of 15.8x 23E PE average of comparable companies, mainly considering the company's leading position in the field of components and assembly, as well as the rapid growth of the new smart products and automotive intelligent systems business. Reiterate the “buy” rating.
1Q23 review: gross margin increased steadily and performance growth was strong
Although demand for consumer electronics products remained weak in 1Q23, BYD Electronics' gross margin further improved to 7.7% (up 1.5 percentage points from the previous month, up 2.2 percentage points from the previous year). This was mainly due to the continued recovery in capacity utilization (mainly the recovery in production line utilization by North American customers) and further improvements in the revenue structure (revenue share of Android customers decreased, and the revenue contribution of the new smart products and automotive intelligent systems business increased). As a result, 1Q23 also recorded strong growth in the company's performance (up 155.0% year over year).
2023 outlook: Revenue structure is expected to improve further
We expect BYD Electronics' revenue structure to improve further in 2023. 1) Parts and assembly business: The revenue contribution of North American customers is expected to increase, mainly because the company will deepen cooperation with North American customers and increase its share of North American customers. 2) New smart products: Considering the strong demand in the European market, the company's household energy storage product revenue may reach about RMB 10 billion by 2023. Revenue from new smart products may increase 30% year-on-year as a result. 3) Automotive intelligent systems: As new energy vehicle related product lines such as intelligent cockpits, ADAS, and thermal management systems enter mass production from 4Q22 to 2023, we remain optimistic about the growth of the company's automotive intelligent systems business in 2023 (Huatai predicts a 120% year-on-year increase).
Maintain the “buy” and target price of HK$30.00
We maintain a target price of HK$30.00, based on 23.2x 23E PE, mainly due to the company's leading position in components and assembly, as well as the rapid growth of the new smart products and automotive intelligent systems business. Maintaining a “buy” considering its current valuation is attractive (18.3x 23-year PE).
Risk warning: chip shortages may affect smartphone sales and demand; demand for smartphone terminals falls short of expectations.