Event: The company released its 2022 annual report and the first quarter report of 2023. The company achieved revenue of 2,111 million yuan for the full year of 2022, an increase of 22.92% over the previous year; realized net profit of 398 million yuan, an increase of 9.42% over the previous year; realized non-net profit of 357 million yuan, an increase of 4.81% over the previous year; the company achieved revenue of 416 million yuan in Q1 2023, a year-on-year decrease of 19.22%, an increase of 6.92% over the previous year; achieved net profit of 509 million yuan over the previous year, an increase of 15.40% over the previous year; achieved net profit of 42.42% over the previous year, an increase of 15.40% over the previous year; achieved Net profit of non-return mothers was 57 million yuan, a year-on-year decrease of 39.53% and a year-on-month increase of 109.07%.

Performance grew against the trend in '22, and costs and expenses affected profits: in 2022, the macroeconomic slowdown, the industry cycle declined, trade disputes, geopolitical conflicts and other factors affected business development; the company's performance bucked the trend, mainly due to the company stabilizing its main business, continuously breaking through innovation, and adhering to technological progress and product iteration on two-wheel drive.

By product: In 2022, the company's video surveillance multimedia processing chip revenue was 1,544 million, an increase of 23.43% over the previous year, accounting for 73.14% of revenue, and a gross profit margin of 37.62%; revenue of smart hardware products was 314 million yuan, up 12.72% year on year, revenue accounted for 14.87%, gross profit margin was 33.16%; automotive electronics revenue was 212 million yuan, up 21.10% year on year, accounting for 10.05% of revenue, gross profit margin of 40.67%.

The company's comprehensive gross margin in 2022 was 38.09%, down 4.36pct from the previous year; the net interest rate was 17.93%, down 4.33pct from the previous year. Both gross margin and net profit margin were under pressure. The main reasons were: (1) product costs rose year on year, and (2) the company's operating expenses increased. In terms of expenses, the company's sales, management, R&D, and financial expenses rates for the full year of 2022 were 0.60%/5.41%/14.26%/0.31%, respectively. The year-on-year changes were -0.07/+0.22/-0.32/+0.40pct respectively. The change in corporate financial expenses in 2022 was mainly due to a year-on-year increase in interest charges on convertible bonds. The company said that launching new products in the second half of '23 is expected to be a quarterly positive trend throughout '23.

The acquisition of Mouxin achieves collaborative development and accelerates the upgrading of new technology: Recently, the company issued a suspension notice to raise supporting capital to issue shares to no more than 35 specific targets to acquire 49% of Mouxin Technology's shares. Prior to this transaction, the company held 51% of Mouxin Technology's shares. Mouxin Technology was the company's holding subsidiary. After this transaction, Mouxin Technology will become a wholly-owned subsidiary of the company. Mocin Technology's main business is designing and developing back-end DVR/NVR SoC chip products, which are compatible with the company's main business. The company is actively promoting integration and development with Mouxin Technology in R&D and marketing to achieve effective business integration and collaborative development. The company has long been deeply involved in the field of vision and is a video-centric chip and complete solution provider. Facing the field of professional video processing, the company has a full range of professional products, from analog to digital, from front-end cameras to back-end recorders. The company and its subsidiaries have launched a series of high-performance, low-power products and solutions with high-quality image processing and coding performance. Based on self-developed NPU, they develop a series of high-performance algorithms that support intelligent functions such as professional-grade personnel/vehicle detection, and have the ability to supply professional smart video chips and solutions in a one-stop manner. The company continues to invest in research and development of advanced technologies such as next-generation ISPs, intelligent ISP technology, intelligent noise reduction technology, H.266 video coding technology, high-performance multi-core heterogeneous SoC architecture design, advanced process platforms, etc., to continuously optimize and improve, and promote the acceleration and upgrading of new technologies. The company's image processing ISP is a professional image processing engine developed in-house for more than 10 years. It has now evolved into the 7th generation, incorporating AINR noise reduction, etc., which can achieve a full range of functions and further enhance image effects; the completely self-developed video codec has now evolved to the 3rd generation, further improving coding efficiency and actual video experience.

The IoT and automotive sector opens up room for growth and continues to improve product layout: According to IoT Analytics forecasts, from 2022 to 2027, the IoT market will grow at a compound annual growth rate of 19.4% to 483 billion US dollars; ICVtank predicts that the global vehicle camera market will reach 27.3 billion US dollars in 2025, and CAGR of 16.0% from 2020 to 2025. The prospects for the IoT and car camera markets are still very broad. The company has multiple series of chip products and solutions for smart IoT, smart car driving and other application fields. The products include serialized end-side ISP/IPC chips and serialized edge-side XVR/NVR chips. Front-end and back-end collaboration has been formed, and it has complete one-stop solution supply capabilities. In the field of smart IoT, the company continues to pay attention to emerging application scenarios, expands cooperation with leading brands, and establishes certain scale and brand advantages; the company continues to introduce new products, and high-performance low-power cameras are mass-produced by customers. The company uses Turnkey solutions, RTOS solutions, etc. to achieve mass production for customers. The company has launched a variety of smart camera chip products targeting consumer scenarios to easily implement intelligent functions and promote the full implementation of Inclusive Intelligence. In the field of smart car dealership, the company has professional vehicle ISP+ analog video link chip+vehicle DVR chip, and a series of vehicle video products and solutions. It has formed a series of competitive products from vehicle rear loading to vehicle front loading, and from inside to outside the cabin; the company launched a new generation of in-vehicle ISP products, which can be applied to AVM/DMS/OMS/DVR products, using next-generation in-vehicle ISP algorithms and advanced process technology for the first time. The products have leading advantages in the industry such as high performance and low power consumption; the company's products completed AEC-Q100 vehicle regulation certification; at the same time, the company accelerated the promotion of ISO-26262 functional safety camera certification, providing complete solutions for vehicles and achieving mass production to promote in-vehicle transmission transmission Technological change and promotion.

First coverage, giving an “increase in ownership” rating: The company's main business is the design and development of chips in the fields of video-centered smart security, smart IoT, and intelligent driving, providing customers with high-performance video codec SoC chips, image signal processor ISP chips and product solutions, as well as providing professional technical services such as technology development and IC design. The main products are professional video processing products, smart IoT products, smart car dealership products, and technical services. The company has long been deeply involved in the field of vision and is a video-centric chip and complete solution provider. The company's products have entered the supply chain systems of many well-known visual manufacturers. As the company continues to expand in the field of IoT and automotive, demand in the downstream market picks up, and the company's performance is expected to reach a higher level.

The company's net profit for 2023-2025 is estimated to be 463 million yuan, 545 million yuan, and 685 million yuan respectively; EPS is 2.01 yuan, 2.37 yuan, and 2.98 yuan respectively; PE is 30X, 25X, and 20X respectively.

Risk warning: the risk of macroeconomic fluctuations, the risk of downstream demand falling short of expectations, the risk of technology development and iterative upgrading, and increased market competition.