Benefiting from R&D investment and management optimization, the back-end camera module is expected to drive significant profit growth opportunities. Considering that the tablet business is dragged down by large customer shipments and the increase in R&D investment, we lowered the net profit of the return mother in 2023-2024 from 0.9 to 115 million US dollars to 0.60/95 billion US dollars. Considering that the company also has opportunities to import the main camera and wide-angle lens modules, we raised the net profit for 2025 from 175 million US dollars to 214 million US dollars, corresponding year-on-year growth rates of -28.2%/58.2%/, respectively 124.6%. The current stock price of HK$12.92 corresponds to 24.4/15.5/6.9 times PE in 2023-2025. We expect 2023H1 to be a low profit point, 2023H2 profit will improve month-on-month, profit will continue to grow in 2024, increase significantly in volume in 2025, and maintain the “buy” rating.

2023H1 revenue fell 9% year over year, lower than market expectations

2023H1 revenue fell 9% year over year, mainly due to a significant decline due to the tablet business being dragged down by major customer shipments. We estimate that the company's mobile phone business revenue maintained a slight positive year-on-year increase. 2023H1 net profit fell 44% year on year to $118 million, mainly due to a combination of factors such as declining revenue, declining gross margin due to customer price pressure, reduced exchange earnings, and increased R&D investment. We estimate that the mobile phone CCM business 2023H1 showed a “volume reduction and price increase”. The decrease in shipment volume benefited from the improvement in product structure due to the decline in demand for terminals from major customers and inventory clean-up, and the year-on-year increase in ASP. We estimate that the 2023H1 ASP for the mobile phone CCM business is around 7.3 US dollars. The year-on-year increase of about 1 US dollar mainly benefited from the increase in zoom specifications, but the price drop was 0.5 US dollars from month to month due to customer price pressure and lower raw material costs in the context of bonus pricing.

We expect 2023H2 profit to improve month-on-month, a rapid rebound in 2024, and significant volume in 2025. We expect 2023H1 to be a low profit point, 2023H2 profit will improve month-on-month, profit will continue to grow in 2024, and significant volume in 2025, mainly based on: (1) 2023H1 mobile phone and tablet CCM shipments are expected to increase month-on-month, benefiting from the higher shipment volume of major overseas customers in the second half of the year than in the first half of the year, combined with differences in camera shares of new and old models, the company's overall share of the mobile phone module supply chain in the second half of the year is higher than In the first half of the year; (2) The company's rear camera module business for major customers progressed smoothly, and there is plenty of room for growth in the rear camera business. The value of the company's rear camera module will increase significantly compared to the front camera module. In addition to the periscope module, the company also has opportunities to introduce the main camera and wide-angle lens modules one after another; (3) the negative impact of the decline in the company's share of new models in the front camera module is relatively limited.

Risk warning: the consumer electronics market is weak, Apple's expansion falls short of expectations, and lidar volume falls short of expectations.