Incidents:

The company released its report for the first quarter of 2023. The 23Q1 company achieved operating income of 178 million yuan, a year-on-year decrease of 32.64%; achieved net profit of 28 million yuan, a year-on-year decrease of 57.82%; and basic earnings per share of 0.31 yuan/share.

Terminals continue to be under pressure, with significant month-on-month improvements

The Q1 industry in 2022 is in a relatively prosperous stage. Since the second half of '22, the terminal market has been weak. The 23Q1 company's sales have declined year on year, and revenue has also declined significantly. The company's performance indicators have all declined year over year, but there has been a significant improvement over the previous month. The company's gross margin was stable, and net interest rate improved significantly from month to month. The 23Q1 gross margin was 42.12% (-2.59pct year on year, +0.06pct month-on-month), and the net interest rate was 16.34% (-8.62pct year on year, +19.9pct month-on-month). Looking at the cost side, the scale of expenses remained the same on a year-on-year basis and month-on-month. The year-on-year increase in the cost rate, influenced by the scale of revenue, was significant, and there was a significant improvement over the previous month.

Continuing to increase investment in R&D, high-performance analog chips have promoted the company's deep field of power management for nearly 20 years. It has formed rich core technologies and functional module IPs around the development trends of low noise, high efficiency, miniaturization and integration of power management chips, and based on this, a multi-category design platform covering power conversion and power protection has been formed. The 23Q1 company's R&D expenses were 28.15 million yuan, an increase of 12.11% over the previous year, and the R&D cost rate was 15.78%, an increase of 6.38 pct over the previous year. Continued high-quality R&D investment ensured the accuracy and high efficiency of R&D. With the efficient advancement of R&D, the company's product applications will expand from mobile phones to automotive electronics, and the sales scale is expected to increase further.

Profit Forecasts, Valuations, and Ratings

Considering the impact of the downturn in the consumer electronics market, we expect the company's revenue for 2023-25 to be 10.02/1310/1,717 yuan respectively, with a corresponding growth rate of 30.58%/30.69%/31.08% respectively, and net profit of 2.33/332/460 million yuan respectively, and a corresponding growth rate of 59.58%/42.35%/38.87%. EPS is 2.60/3.70/5.14 yuan per share, and a three-year CAGR of 46.66%. Given that the company's consumer electronics business is expected to recover and the detonator business is growing rapidly, based on comparable company valuations, we gave the company 35 times PE for 23 years, with a target price of 90.99 yuan. Maintain a “buy” rating.

Risk warning: Market competition intensifies, and the recovery in downstream demand falls short of expectations.