Incidents: The company released its three-quarter report for 2023, achieving operating income of 682 million yuan, a year-on-year decrease of 22.14%; net profit of 111 million yuan, a year-on-year decrease of 49.88%, and net profit of 85 million yuan after deducting non-net profit of 85 million yuan, a year-on-year decrease of 56.03%. Looking at the third quarter alone, the company achieved operating income of 200 million yuan, a year-on-year decrease of 21.65%; net profit of 34 million yuan, an increase of 14.22% year-on-year, and net profit of 26 million yuan after deducting non-net profit of 26 million yuan, an increase of 18.81% year-on-year. Overall performance was in line with expectations.
Key points of investment:
Design companies' inventory removal continues to cause weak momentum in sealing and testing orders. Q4 is expected to be an inflection point in fetching goods. According to financial reports, most of the company's revenue comes from the CIS industry. The top five customers in 2022 accounted for 72.58%. The concentration is high, and the operating rate is strongly correlated with customer orders. We expect that a slight adjustment in the company's operating rate will affect the gross profit margin mainly due to the sharp decline in the semiconductor industry and the continued removal of its downstream customer inventory. The company's Q3 gross margin was 35.86%, down 4.85pcts from month to month.
Judging from the financial reports of leading CIS companies, Weir's stock inventory fell slightly from 9.828 billion at the end of Q2 to 7.552 billion in Q3; Stevie's inventory fell slightly from 2,551 billion at the end of Q2 to 2,538 billion in Q3; and Geke Micro's inventory increased slightly from 3,981 billion at the end of Q2 to 4,022 billion in Q3. The above three companies' inventories have not deteriorated significantly, and Q4 is expected to show an inflection point.
The automotive CIS is expected to become a new growth engine. According to Omdia data, the global CIS market in 2022 was US$18.495 billion, the first negative growth in the past seven years. Although the CIS market has been affected by macroeconomic factors, with the increase in the number of CIS installations in automobiles, automotive applications have shown significant growth, which is expected to become a new growth engine for the CIS market in the future. The company continues to innovate and optimize processes according to product and market needs. On the one hand, in response to performance improvement needs in the field of automotive electronics applications, the company vigorously promotes the development and innovation of the vehicle regulation stack packaging process, increases mass production scale, improves production efficiency, reduces production cycle and costs, and continuously enhances technological leadership and business scale in the field of vehicle regulation CIS.
The technology for miniature optical devices has been effectively expanded, and the scale of the semiconductor optical lens business has come to prominence. The company continues to integrate the design, R&D and manufacturing capabilities of Dutch Anteryon and Crystal Square Optoelectronics miniature optical devices to expand the scale of mass production and commercial applications.
Anteryon's predecessor was Philips' Optoelectronics Division. Currently, its largest customer is ASML in the Netherlands. Its hybrid lenses and wafer-grade miniature optical lenses (WLO) are mainly used in lithography machine optical lenses and car welcome lights under the MLA program. Along with ams OSRAM, it is one of the few manufacturers in the world that have mastered MLA module production technology and mass production. According to the company's semi-annual report, 23H1 Jingfang Optoelectronics achieved net profit of 1.8 million yuan, and Anteryon achieved net profit of 12.77 million yuan.
Continue to carry out international mergers and acquisitions integration to promote the expansion and expansion of the industrial chain. The company further increased its investment in Israel's ViSiC company, vigorously expanded the deployment of high-power gallium nitride technology for vehicles, and made full use of its advanced packaging industry and technical capabilities to develop technology and industry in order to seize the industrial development opportunities of third-generation semiconductors in the field of new energy vehicles. As of 23H1, the company and Jingfang2 Industrial Fund held a total of 51.37% of ViSiC's shares.
Adjust profit forecasts and maintain “buy” ratings. The company's top five customers accounted for 72.58% of revenue in 2022 (mainly CIS). In the first half of the year, they were greatly affected by the weakness in downstream consumer electronics. As leading CIS inventories gradually disappeared, we are optimistic about the reversal in the beginning of Q4 in the CIS industry. We adjusted the company's net profit for 23-25 to 2.04/2.79/329 million yuan (3.14/4.22/503 million yuan), corresponding to 77/55/47X for 23-25. According to Wind, Tongfu Microelectronics, a comparable company in the closed testing industry, currently has a PE of 94X in 2023, maintaining a “buy” rating.
Risk warning: customer orders fall short of expectations; industry sentiment falls short of expectations; supply chain risks.