Event: On October 27, the company released its report for the third quarter of 2023. In the first three quarters, the company achieved revenue of 337 million yuan, +24.56% year-on-year; net profit of 12 million yuan, -46.28% year-on-year. In the third quarter alone, we achieved revenue of 119 million yuan, +18.92% year-on-year, and realized net profit of 0.5 billion yuan, +74.45% year-on-year.
Q3 profit improved markedly year over year, and gross margin continued to increase quarter by quarter. Since this year, the company's revenue side has continued to recover, and the year-on-year growth rate on the profit side has improved quarter by quarter. Especially in the third quarter, the growth rate changed from negative to positive, with impressive performance. The performance for the third quarter improved markedly, mainly due to a sharp increase in gross margin. Looking at the third quarter alone, gross margin was 51.36%, +8.77pct year over year and +6.64 pct month-on-month; net profit margin was 3.75%, +0.97 pct year over year. The performance for the first three quarters was under pressure, mainly due to a drag on overall gross margin. However, judging from the trend, this year's gross margin showed a quarterly recovery trend. With the structural restoration of downstream orders, gross margin is expected to continue to improve. In the first three quarters, the company's gross margin was 46.25%, y-3.88pct; net profit margin 3.19%, y-4.71pct; period expense ratio was 46.42%, y-1.66pct; of which, sales/management/R&D/financial expense ratio was 15.74%/10.62%/16.67%/3.38%, year-on-year -0.27/ -0.22/-1.43/+0.24pct. In addition, the company's cash flow situation improved markedly. In the first three quarters, net operating cash flow was 72 million yuan, +54.86% over the same period last year.
The self-developed chip has already been delivered, which is expected to further enhance competitiveness. The ASIC chip, a professional audio and video processing chip developed by the company, was delivered to the fab in early August. On the one hand, the launch of the self-developed chip will greatly enhance the company's competitiveness, help the company obtain more independent and controllable orders, and at the same time greatly reduce the company's chip procurement costs and enhance the company's profitability; on the other hand, the company's self-developed chips will be put on the market in addition to prioritizing the needs of its own products, diversifying product application scenarios, and is expected to continue to expand revenue scale and help long-term sustainable performance.
Actively lay out emerging racetracks, and continue to expand products and application fields. In addition to traditional business, the company is committed to developing new tracks and actively deploying new fields such as AR/XR. The company has recently developed two XR digital products: X-shadow and Pandora. Through the integrated application of key AR reality augmentation technology, XR digital interaction technology, and AI intelligent scene recognition technology, it empowers new scenarios such as integrated rendering and perceptual interaction. Among them, X-shadow is an AR projection product that can enhance the projection of objects in the real world. Users can experience the fusion effect of reality and virtual light with the naked eye without using any auxiliary equipment, and can be widely used in indoor and outdoor decoration, art exhibitions, product displays, and specific effects to present scenes; Pandora is an immersive video interactive entertainment system that uses standardized audio and video display and virtual interactive docking technology, and can provide an immersive gaming experience including visual, auditory, and tactile sensory experiences. Related products were exhibited at the 2nd World Metaverse Ecology Expo, and won the Metaverse VR/AR/MR/XR Leading Company Award, the Digital Exhibition Leading Company Award, the Metaverse VR/AR/MR/XR Outstanding Hardware Award, the Metaverse Interactive Technology Award, and the Outstanding Digital Device Product Award.
Profit forecast and investment rating: The company's net profit from 2023-2025 is expected to be 0.74/1.03/134 million yuan, and the current stock price corresponding to PE is 43/31/24 times, respectively. It is optimistic that the company's future performance will grow steadily and maintain the “buy” rating.
Risk warning: chip flow falls short of expectations, downstream demand falls short of expectations, risk of raw material price fluctuations, risk of macroeconomic fluctuations.