3Q23 performance is slightly lower than we expected.
The company announced results for the first three quarters of 2023: 1-3Q23 realized revenue of 7.53 billion yuan, year-on-year-1.33%; gross profit 33.42%, year-on-year-3.94ppt; return net profit 1.056 billion yuan, year-on-year-48.66%; deduction of non-return net profit of 920 million yuan, year-on-year-50.6%. Among them, 3Q23 realized income of 2.5 billion yuan, year-on-year + 0.57%, month-on-month ratio-7%; gross profit 31.66%, year-on-year-5.48ppt; month-on-month ratio-2.19ppt; net profit of return to mother 278 million yuan, year-on-year-60.4%, month-on-month-30%; deduction of non-return net profit of RMB 188 million, year-on-year-66.21%, month-on-month-52.57%. 3Q23's performance was slightly lower than we expected due to the decline in gross profit margin and impairment losses on some products due to competition.
Trend of development
Reviewing the first three quarters of 2023, we see that the company continues to give full play to the advantages of the IDM model, making efforts in chip design, mask manufacturing, wafer manufacturing, packaging manufacturing and other fields, and gradually moving closer to the high-end product market, IGBT, IGBT modules, compound semiconductors (silicon carbide and gallium nitride) new products gradually landed.
The company maintains a balanced share in all downstream areas, while continuing to develop new energy, industrial and other high-threshold applications. From an operational point of view, the company's 6-inch and 8-inch factories have maintained a high capacity utilization rate. But we also see that with the gradual clearing of inventory in the industry, various manufacturers are also faced with price competition and inventory impairment. We believe that with the clearance of inventory, the elimination of tail manufacturers, and gradual acquisitions and mergers within the industry, the market is expected to gradually stabilize.
Looking forward to 4Q23, 2024-2025, we believe that the company's main growth points come from: the mild recovery of consumer products; new product launches, focusing on the gradual introduction of IGBT, IGBT module and compound products, as well as downstream verification and volume of new energy power generation and new energy vehicle customers. In terms of production capacity, the company's 12-inch plant in Chongqing has been gradually put into production, and we expect that Shenzhen's 12-inch simulated characteristic process is expected to contribute revenue to the company in 2025.
Profit forecast and valuation
Due to market competition and asset impairment, we reduce the company's 2023 income and net profit by 17% and 32% to 9.967 billion yuan and 1.348 billion yuan, and by 17% and 38% to 11.634 billion yuan and 1.639 billion yuan. The company's current share price corresponds to 3.3x 2023e PB and 3.1x2024e PB. We believe that the two major production lines under construction in Chongqing and Shenzhen are expected to provide the company with growth momentum in 2024 and continue to strengthen the company's leading position in IDM. Maintain an outperform industry rating and a target price of 66.59 yuan, corresponding to 4.1x 2023e PB and 3.8x 2024e PB, which has 23% upside compared with the current stock price.
Risk
Price competition; capacity growth is not as expected; downstream demand is not as expected; shareholder holdings plan is not as expected.