The 2Q23 performance is basically in line with the forecast. Vehicle optics still has technical advantages. Lianchuang Electronics 2Q23 has revenue of 2,242 billion yuan, down 21.8% from the previous year; the net profit loss for Gimu was 102 million yuan, down 261.2% from the previous year. Previously, the company predicted that Q2's net profit was expected to lose 0.13-123 million yuan, falling within the guidance range, narrower than the Q1 loss of 178 million yuan. However, we saw a significant decline in optical business revenue and gross margin in the first half of the year, and the touch control business as a whole is still in the adjustment stage. Q2 The R&D cost rate was tightened to 4.3%, down 4.6 pct from the previous month, and the effectiveness of cost side control began to be shown. Considering that the overall optical recovery progress fell short of expectations due to weak terminal demand, we lowered 23/24/25E revenue to 104.0/116.5/12.80 billion yuan, and reduced the company's net profit to -1.0/3.1/560 million yuan (previous value -0.4/40/6.2 billion yuan). Based on the SOTP valuation, the company was given 37x PE for 2024E optical business (21.6x for comparable companies, taking into account the advantages of the company's on-board optical card slots and high growth rate of in-vehicle business); 13x PE for terminal manufacturing (12.9x for comparable companies), with a target price of 13.14 (previous value of 14.53 yuan). Maintain the “buy”.
1H23 review: Optics business revenue declined, R&D expenses narrowed month-on-month. 1H23 achieved revenue of 4.20 billion yuan, a year-on-year decline of 13.81%. Among them, revenue from the optical business was 1.14 billion yuan, down 24.7% from the previous year. We believe that NIO, a major automotive customer, delivered only 55,000 vehicles in the first half of the year, and the growth rate slowed down. (2) Downstream demand for high-definition wide-angle and mobile phone optical services is still weak.
We believe that due to poor capacity utilization and the impact of car companies' price cuts, the gross margin of 1H23's optical business fell 2.56 pct year-on-year. Furthermore, the company's touch display business revenue was -39.96% year-on-year, gross margin fell 2.93pct to 1.72% year-on-year, and the touch business is still in the adjustment and settlement stage. The application terminal business saw a year-on-year increase of 83.3% in revenue due to high shipments from major customers. In terms of costs, Q2 spent 96 million yuan on R&D, which is narrower than Q1's 175 million yuan. 1H23's net profit to parent was 280 million yuan, a year-on-year decrease of 370.3%.
Outlook: We are optimistic about the demand for 8M vehicle cameras, but the negative effects brought about by the rest of the business still exist in the short term. We believe that currently achieving NOA level of autonomous driving in L2+ cities will drive up the demand for hardware, and the company's high-end automotive lens technology is scarce. Referring to Ansemi's guidance, 8M CMOS chip revenue will double in 23 years, the 8M track will expand at an optimistic pace, and the second half of the year is expected to usher in Tesla hardware upgrades. Furthermore, the launch of the first glass plastic lens for the Xiaomi folding screen and the Huawei Mate 60 may accelerate the penetration of glass plastic lenses in the mobile phone industry. Vehicle lenses/modules and mobile phone lenses are expected to contribute to long-term growth. However, looking ahead to 2H23, we think negative factors include: (1) losses in the first half of the year were large; (2) the impact on touch display business was still high, and the overall recovery of consumer electronics fell short of expectations; and (3) the pressure on OEMs to cut prices may continue.
Maintaining the “buy” rating, based on the latest share capital maintaining a target price of 13.14 yuan, we believe Q3 is expected to achieve a positive single-quarter profit correction, and the profit situation will improve quarter by quarter. However, considering that the optical business is being dragged down by downstream demand and that gross margin is under pressure, we lowered our 23/24/25E net profit to -1.0/3.1/560 million yuan. Based on the SOTP valuation, the target price was lowered to 13.14 yuan to maintain the “buy”.
Risk warning: Demand in the automotive camera industry has fallen short of expectations, and the recovery of the consumer electronics industry is progressing slowly.