Incident: The company released its 2023 semi-annual results after the market on August 10. 2023H1 achieved revenue of US$367 million, -9.35% year-on-year, and net profit of US$17.53 million, or -43.72% year-on-year. Our review is as follows:
23H1 net profit declined year on year, mainly due to poor iPad demand, exchange rate fluctuations, and increased R&D expenditure. The company achieved revenue of US$367 million in the first half of '23, -9.35%, and net profit of US$17.53 million, -43.72% year on year, gross profit margin of 13.87%, -0.99 pcts year on year, net interest rate of 4.78%, and -2.92 pcts year on year. The slight year-on-year decline in the company's 23H1 revenue was mainly due to weak demand for iPad in the first half of the year and a large decline in customer orders, while iPhone front-camera business revenue is still expected to increase year-on-year, mainly due to the increase in share and unit price; 23H1's profitability also declined. We think it was mainly due to:
(1) Exchange earnings declined significantly year on year; (2) the unit price of the product fell; (3) R&D expenses increased year on year due to investment in new business, and the 23H1 administrative expenditure rate increased to 8.67%, +1.41 pcts year on year.
Downstream demand for the 23H2 is expected to improve month-on-month. The new iPad rear-camera upgrade module ASP is expected to open up several times more performance space by entering the iPhone rear-camera business in '24. 23H1 macroeconomic and other reasons affect iPad and iPhone demand, while the 23H2 iPhone ushered in a year of innovation, demand is expected to improve marginally. At the same time, the AF innovation of the new 23H2 iPad will increase module ASP, and the company's overall fundamentals are improving month-on-month. The company is currently the main supplier of iPhone and iPad front-camera modules. It has a rich technical heritage, and has made significant progress in cost control and customer service since being acquired by Lijing. According to our estimates, the Apple camera module market space will grow from US$15 billion to US$18 billion from 2022 to 2025. Among them, the iPhone and iPad rear camera module market size is several times that of previous cameras. Peristive and AF are important innovations in recent years. We expect the company 2024h2 to switch to the iPhone rear camera module in the next 3 years after the iPhone and iPad The camera module business will bring about a significant increase in performance.
Vision Pro and the lidar business provide medium- to long-term growth momentum. VR/AR and lidar are the driving forces of the company's next growth. (1) VR/AR: Apple released its first Vision Pro headset in June. The first 8 and back 4 cameras of the Vision Pro product were supplied by the company. ASP reached tens of dollars. In the 25-year pre-research direction of next-generation cost-effective products, we expect that the company's participation in camera material numbers and value will continue to benefit along with the massive expansion of next-generation products. (2) LiDAR:
The company established Liteng Innovation as a joint venture with Suteng Juchuang to cooperate in lidar module and system assembly business. Mass production and shipment will be achieved in 2022, and product shipments and profitability are expected to increase steadily in 2023.
Maintain a “Highly Recommended” investment rating. We believe that although Gaowei Electronics' short-term performance is hampered by factors such as downstream demand, exchange rate fluctuations, and investment in new product research and development, the company will have several times growth flexibility in the next 2-3 years; at the same time, the company's forward-looking VRAR and lidar business has room for medium- to long-term growth. We adjusted our revenue forecast for 2022/23/24 to $1,061/18.36/$2,811 billion and net profit of $0.65/1.20/$185 million. The current market capitalization corresponds to PE of 21.6/11.7/7.6 times, maintaining the “Highly Recommended” investment rating.
Risk warning: downstream demand falls short of expectations, new business expansion falls short of expectations, increased industry competition, and technology iteration risks.