In 23Q3, the company achieved net profit of 300 million yuan, +61% year-on-year; gross margin was 50%, +9pcts year-on-year.
The company's performance in the third quarter exceeded market expectations. We believe it is mainly for centralized acceptance of perspective-type module projects supplied to customer A. The company added nearly 500 million yuan in contract debt in Q3, which is relatively ahead of semiconductor equipment and consumer electronics equipment companies, indicating that the company has sufficient orders in hand. Considering that the company is in a period of rapid development, we raised the net profit forecast for 2023/24/25 to 5.44/702/783 million yuan (the original forecast was 4.46/6.46/753 million yuan), giving the 2024 target PE 21 times, and the corresponding target price is 74 yuan, maintaining the “buy” rating.
The company's profit and gross margin for the third quarter exceeded market expectations, with net profit of 300 million yuan per quarter, +61% year-on-year.
In the first three quarters of 2023, the company achieved revenue of 2.6 billion yuan, +24%; gross margin of 45%, +4.2 pcts; net profit of 400 million yuan, +73% year-on-year; net profit of 400 million yuan, +73% year-on-year; and realized net profit after deduction of 390 million yuan, +73% year-on-year. Looking at a single quarter, the 23Q3 company achieved revenue of 1.2 billion yuan, +9% year-on-year; gross margin was 50%, +9pcts, +10pcts; net profit of 300 million yuan, +61% year-on-year; and realized net profit of 3.1 billion yuan, +72% year-on-year. The company's profit and gross margin for the third quarter exceeded market expectations. We believe that it is mainly for centralized acceptance of perspective-type module projects supplied to customer A, and that the profitability of the new products has improved markedly compared to the old products.
Q3 added nearly 500 million yuan in contract debt, which partly indicates that the company has sufficient orders in hand to guarantee future performance growth.
Looking ahead to 23Q4, we expect that the company is still in the stage of releasing perisive module equipment. As of September 30, '23, the company's contract debt was 1.5 billion yuan, and the company's contract debt at the end of Q3 increased by nearly 500 million yuan from the end of Q2 (as a comparison, at the end of Q3, other semiconductor equipment and consumer electronic equipment companies, China Micro Company/Tuojing Technology/Precision Electronics/Zhongke Fitex/Bozhong Precision, respectively, was 14/15/3.6/5.3/3.2 billion yuan, respectively, changes from Q2 to 4.39/0.09/+0.14/0.33/-86 million yuan), and the company's contract debt growth was leading in the industry.
We expect that the contract liabilities in the company's hands are mainly advance payments for semiconductor equipment and equipment related to A customer. The month-on-month increase in contract liabilities also partly reflects the company's sufficient orders in hand and the increased competitiveness of the company's equipment among clients; the company's inventory reached 1.6 billion yuan, down about 130 million yuan from the end of Q2. The inventory is mainly products and equipment that has not been inspected after release, and has remained relatively stable.
The equity incentive target for 2023/24 is 36/43 million yuan in net profit after deducting non-return to the mother, and we have full confidence that it can be achieved. The company implemented an equity incentive plan on September 8, 2023. The incentive plan is locked in for one year, and 50% can be lifted every other year thereafter. The company-level performance assessment requirements for the first/second lifting period are for 2023/2024 to deduct non-return net profit of 36/4.3 billion yuan, respectively, +25.3%/19.4% over the same period. The company has already achieved net profit of 320 million yuan after deducting non-return from parent in the first three quarters. We believe it is more likely that the company will achieve its equity incentive target in 2023.
Looking forward to the future, we believe that the company's core strategy is to expand categories based on the existing 3C major customers while actively expanding into the semiconductor equipment field. Looking forward to the future, (1) Client A: The company has cooperated deeply with customer A for more than ten years, and the supply of products has expanded from watch equipment to mobile phones and headphone devices. It is already the leading supplier of 3C automation equipment for customer A. The company is deeply involved in customer A innovation. The latter is expected to support the company's performance growth in 2024, such as MR innovation, new headphone products, and mobile terminal innovation; (2) In terms of semiconductor equipment, the company's early acquisition of Japan OPTIMA, the world's leading wafer inspection equipment supplier, entered the semiconductor field, covering leading overseas semiconductor customers such as SUMCO, SK Siltron, and Samsung. Domestic customers include Easyway, Zhonghuan, Jin Ruihong, Shanghai Silicon, and Zhongxin Wafers. Currently, the company's customers are mainly global silicon wafer manufacturers and overseas fabs. Subsequent companies are expected to further enter domestic fab related business and create the company's second growth curve.
Profit forecast, valuation and rating: The company is a leading 3C automation equipment manufacturer in China. It has been deeply involved in the consumer electronics industry for more than 20 years, deeply connected with A customers and their industrial chain, and extended to the semiconductor and new energy fields. We are optimistic that the company will participate deeply and benefit from customer A's innovations in mobile phones, MR, and headsets, while continuing to expand the product range of semiconductor inspection and measurement equipment, further opening up room for growth. We adjusted the company's revenue forecast for 2023-2025 to 38.39/54.16/6.393 billion yuan (original forecast was 42/59/69 billion yuan), and raised the net profit forecast to 5.44/702/783 billion yuan (original forecast was 4.46/6.46/753 billion yuan), corresponding to the EPS forecast of 2.72/3.51/3.91 yuan, respectively. As of October 30, 2023, the current market value of comparable companies Blogger Precision, Intelligent Cube, Adachi Intelligence, and Precision Electronics is 15/14/10/47 times the 2024 PE valuation, respectively, with an average of 21 times (based on Wind's unanimous expectations). Based on prudential principles, we have given the company 21 times the target PE for 2024, with a corresponding target price of 74 yuan, maintaining a “buy” rating.
Risk factors: risk of worsening market competition pattern; risk of loss of the company's core technical and technical personnel; risk of high customer concentration; risk of the company's consumer electronics terminal shipments falling short of expectations; risk of semiconductor and new energy business development falling short of expectations; risk of large exchange rate fluctuations; risk of overseas restrictions on local investment in Chinese semiconductor companies.