3Q23 Revenue exceeded expectations, inventory removal went smoothly. Focus on 50M series new products to increase performance
Well's three-quarter report for '23 achieved revenue of 6.223 billion yuan (yoy +44%), exceeding our previous expectations (5.5 billion yuan), net profit of 210 million yuan (yoy +255%), net profit of 210 million yuan (yoy +255%), net profit of 210 million yuan (yoy +206%).
The company's 3Q inventory level fell to 7.552 billion yuan (-23.2% qq) month-on-month, which is very close to the company's three-month inventory turnover target (6-7 billion). The company's overall gross profit margin in 3Q23 was 21.8% (+4.5pp qoq), mainly driven by 50M new products and automotive products. Looking ahead, we believe that the comprehensive low/medium/high/potential layout of the new 50M series mobile phone products will help the company gradually increase its market share in high-resolution products in the future, but it is estimated that it will still take time for the company's gross margin to repair. We lowered the company's 2023/24/25 net profit by 40/14/ 5% to 75/23.5/3.19 billion yuan to 7.5/23.5/3.19 billion yuan to reflect the pace of gross margin recovery. Considering that the company's new product layout is expected to drive the company's market share of high-end products to increase, 57.8 times PE in 2024 (industry median is 50.6 times that of 2024), maintain the target price of 115 yuan, and buy.
3Q23: New mobile phone CIS products drove revenue beyond expectations. Inventory removal was successful. 3Q23 Company achieved revenue of 6.22 billion yuan (yoy +44%), of which distribution business revenue was 770 million yuan, and semiconductor design business achieved revenue of 5.45 billion yuan. Overall gross margin increased by 4.5pp to 21.8% month-on-month, mainly driven by new mobile phone CIS products and automotive CIS. The company's 3Q inventory level fell to 7.552 billion yuan (-23.2% qq) month-on-month, which is already very close to the company's three-month inventory turnover target ($6-7 billion). We expect that as high-cost inventories are digested and high-end products are gradually released, the company's gross margin is expected to continue to rise month-on-month, driving improvements in the company's profitability.
Long-term outlook: Mobile phone CIS product layout is perfect, automobile/AMOLED and other businesses continue to drive growth. We see the industry side. Large-format cameras are gradually penetrating from high-end phones to mid-range phones, driving structural growth in the CIS industry. The company continues to be below 2,000 yuan (50D), 2000-3000 yuan (50E), more than 3,000 yuan (50H/K), and subsequent perisive (50M) layout of various Android phone image sensor products in various price categories. We expect that as new products continue to be launched, the company's share of the main camera market for Android phones will continue to increase. On the automotive side, we expect that in-vehicle CIS will continue to grow rapidly, LCoS will also start contributing revenue in '23, and other MCU/PMIC/CAN/LIN will continue to generate revenue in 24/25. On the display driver side, AMOLED products next year may begin to be introduced in the first half of next year.
Maintain a buying rating and target price of $115
We lowered the company's 2023/24/25 net profit by 40/14/ 5% to 75/23.5/3.19 billion yuan to 7.5/23.5/3.19 billion yuan to reflect the pace of gross margin recovery. Considering that the company's new product layout is expected to drive the company's market share of high-end products to increase, 57.8 times PE in 2024 (industry median is 50.6 times that of 2024), maintain the target price of 115 yuan, and buy.
Risk warning: In the global semiconductor downturn cycle, demand for mobile phones and the like fell short of expectations, and industry competition intensified.