3Q23 performance is lower than we had expected.
Mega Intelligence announced the third quarterly report of 2023: revenue in the first three quarters was 1.56 billion yuan, down 13.34% from the same period last year; net profit from home was 68.66 million yuan, down 43.91% from the same period last year; and net profit from non-return was 43.15 million yuan, down 47.66% from the same period last year, which was lower than our previous expectation. We judged that the main reason was 1) the weak demand for traditional IoT and FWA business led to the pressure on the income end, and 2) the high R & D expenses were a drag on profitability. Corresponding to the single quarter of 3Q23, the company achieved revenue of 537 million yuan, down 20.60% from the same period last year; net profit from home was 20.01 million yuan, down 44.73% from the same period last year; and net profit from non-return was 18.96 million yuan, down 46.21% from the same period last year.
Key points of financial report: 3Q23's single-quarter gross profit margin slightly decreased to 17.1% compared with the same period last year; in terms of expense rate, the sales expense rate / management expense rate / R & D expense rate increased 0.56pct/0.40pct/1.09pct to 2.5%, 2.4% and 9.8% compared with the same period last year, maintaining a high R & D cost; in terms of return to the mother's net profit margin, due to the expense rate, the net profit rate decreased by 1.63pct to 3.7% compared with the same period last year.
Trend of development
The intelligent network-connected car business has maintained rapid growth, and the traditional IoT and FWA services are under pressure. For on-board business, the company works closely with major customers to break through joint venture brands / new forces of car building / Tier1 manufacturers. As of 1H23, intelligent online car business has maintained rapid growth, and related revenue has more than doubled. For FWA business, according to the company's semi-annual report, due to the demand changes of overseas operators / customer structure, the overall demand has weakened, but the 4G\ 5G new products launched by the company in conjunction with Qualcomm Inc / Zhan Rui and other manufacturers continue to win the bid and R & D on the ground. For traditional IoT business, demand is weak due to macroeconomic impact. According to the company's semi-annual report, the proportion of overseas customers in IoT continues to increase. We are optimistic about customer expansion and the growth of vehicle communication modules driven by large customers, and believe that the company is expected to benefit from the expansion trend of the Internet of things in the long run.
Actively carry out the layout of intelligent modules and computing modules to enrich the product matrix. 3Q23 actively promotes the layout of intelligent modules, computing modules and other fields, launching high computing power AI module SNM9301 in July, and October 5G intelligent module SRM955 has won the global mainstream certification 2. We are optimistic about the company's advantageous position in the field of intelligent modules and are expected to benefit from the wave of AIoT development.
Profit forecast and valuation
Due to the pressure on downstream demand and the high level of R & D expenses, we have reduced our 2023 / 2024 net return by 36% to 124 million yuan / 170 million yuan. The current share price corresponds to 2023 / 2024 55.6 times / 40.4 times Pmax E. To maintain its outperforming industry rating, we are optimistic about the company's leading position in the field of smart modules. based on 42.0 times 2024 PMaple E, we have lowered our target price by 19% to 27.29 yuan, which is 4% upside from the current stock price.
Risk
Intelligent module promotion / vehicle networking product promotion / overseas market expansion is not as expected, exchange rate fluctuation risk.