2Q23 achieved a year-on-month increase in revenue, and a decline in gross margin led to an expansion of loss exposure. 2Q23 achieved revenue of 128 million yuan (yoy: +26.43%, qoq: +6.31%), with net loss of 110 million yuan (yoy: -10.79%, qoq: -67.36%). 2Q23 The company achieved a month-on-month increase in revenue, mainly due to: 1) the company's increased customer penetration rate in mobile phone brands and increased shipments of new projects; 2) the increase in 4G projects for IoT customers driving the increase in the company's 4G product shipments. As 2Q23's share of IoT 4G product revenue increased, and 1Q23's gross margin base was higher due to price cuts calculated earlier and was prepared for resale, 2Q23's gross margin fell 12.93pct to 10.69% month-on-month. We expect revenue for the second half of the year to continue to improve month-on-month, maintaining the 23/24/25 company revenue forecast of 603/11.11/1,371 billion yuan. Considering that the company's share of leading customers has increased rapidly, and that various new products have achieved pre-mass production, we will give 10x 24PS (industry average value 7.6x 24PE), with a target price of 24.5 yuan, and “buy”.
2Q23 review: The customer penetration rate of mobile phone brands increased, and the increase in 4G projects dragged down gross margin. Although smartphone market demand was still weak in the first half of the year, the company achieved a relatively rapid increase in its share among mobile phone brand customers with cost-effective products. Shipments of new projects increased month-on-month, driving a month-on-month increase in 2Q23 mobile phone RF chip revenue. At the same time, the increase in 4G projects for some 2Q IoT customers led to a month-on-month increase in the company's 4G product revenue. In terms of gross margin, 2Q23 the company's gross margin was 10.69% (yoy: -6.21%,
QOQ: -12.93pct), the large month-on-month decline was mainly due to: 1) the increase in the share of 4G product revenue; 2) the decline in product prices due to industry competition; 3) 1Q23 had a high base due to price drops calculated earlier and preparations for resale. Considering that OEM costs have declined since 2Q23 and that new 3Q products will be introduced one after another, we expect gross margin to improve in the second half of the year. In terms of inventory, inventory as of the end of the second quarter was 510 million yuan, a decrease of 26 million yuan from the end of the first quarter. From a structural point of view, the balance of goods in inventory has decreased compared to the end of last year. The increase is mainly for raw materials/in-process products, and some are for new project stocking. Inventory turnover has improved markedly.
2023 outlook: Downstream inventory removal has been gradually completed, and pre-mass production of L-pamid has been successfully achieved. Looking at the demand side, according to the opinion of Qualcomm and MediaTek at the second quarter legal conference, there is still uncertainty about when demand in the mobile phone market will recover. However, considering the gradual completion of inventory removal from downstream channels/terminals, and at the same time, the launch of new models of mobile phone brands will drive inventory, 2H23's mobile phone business revenue is expected to maintain month-on-month growth.
The company is actively improving the RF front-end product layout. The second-generation 5G low-frequency L-pamid module and medium- to high-frequency L-pamid module have all entered the pre-mass production stage, and it is expected to start contributing revenue within the year. In addition, competitive new products such as the low-voltage version 5G L-PAMIF and MMMB PA modules have also entered the pre-mass production stage. The company's market share in mobile phone brands is expected to continue to increase, and profitability is also expected to improve.
Investment suggestions: Target price is 24.5 yuan, give a “buy” rating, and we maintain the 23/24/25 revenue forecast of 603/11.11/1,371 million yuan. Considering that the company's share among leading customers has increased rapidly, and that new products such as medium and high frequency L-PAMID and low-voltage version 5G L-PAMIF have achieved pre-mass production, we are given 10x 24PS (industry average 7.6 x 24 PE), with a target price of 24.5 yuan.
Risk warning: Downstream demand is recovering slowly, market competition is intensifying, and iterative technological upgrades fall short of expectations.