Incidents: On October 28, the company released its report for the third quarter of 2023. Q1-Q3 in '23, it achieved revenue of 375 million yuan, a year-on-year increase of 16.41%; net profit of net income of 59 million yuan, a year-on-year decrease of 161.28%; and realized net profit after deducting non-return net profit of 109 million yuan, a year-on-year decrease of 391.08%. The third quarter achieved revenue of 155 million yuan, a year-on-year increase of 36.66%; realized net profit of $22 million, a year-on-year decrease of 161.42%; and realized net profit after deducting non-treasury net profit of $39 million, a year-on-year decrease of 319.55%.
The edge computing chip business continues to strengthen, and revenue levels have further rebounded: the company's third quarter report revealed that Q3 of '23 achieved revenue of 155 million yuan in a single quarter, an increase of 36.66% over the previous year.
Among them, the revenue of the edge computing chip business (mainly customized mass production service business) was 68.054 million yuan, an increase of 654.46 million yuan over the previous year. The revenue of the edge computing chip business in Q1-Q3 in '23 was 17,8862 million yuan, an increase of 122.0417 million yuan over the previous year, a significant increase.
Gross margin declined, and R&D investment continued to expand: The company's third quarter report revealed that the average gross margin for the 23Q3 quarter was 23.76%, down 28.15pct year on year. The main reason was that sales, management and R&D expenses increased 89.07% year on year, with R&D expenses increasing 111.72% year on year. In '23, Q1-Q3 continued to increase R&D investment in the core competitiveness of products such as automotive electronic chips, high-performance high-security edge computing chips, and high-reliability storage control chips, while building an efficient sales team in this field. 23Q1-Q3 R&D expenses increased 99.24% year over year, and sales expenses increased 41.49% year over year.
The automotive electronics business is under pressure in the short term and has a competitive advantage over the long term: in '23, the entire automotive sector faced pressure to remove inventory, while insufficient demand in the automotive electronics chip sector put pressure on the company's short-term performance. As the automobile industry moves towards electrification, intelligence, and connectivity, the general trend of domestic replacement of automotive electronic chips will not change. Among them, the demand for chips in new energy vehicles will become stronger. According to information from Wind's research activities, in the face of huge market opportunities, the company has the following advantages: First, it has a large customer base and is among leading domestic manufacturers, including complete machine manufacturers such as BYD, Chery, Geely, SAIC, Changan, FAW, Dongfeng, and Great Wall, including module manufacturers such as Etech, Hengrun, and Koseda; second, the company's automotive electronic chip products are mainly focused on automotive core chips such as MCU, SoC, and digital-analog hybrid chips. As of September 30, 2023, the company has implemented a serialized layout of 12 products online, including automotive body and gateway control chips, powertrain control chips, domain control chips, new energy battery management chips, vehicle network security chips, digital-analog mixed signal chips, active noise reduction special SoC chips, wire-controlled chassis chips, instrument chips, airbag chips, driver assistance processing chips, and intelligent sensor chips, etc., to expand the width and depth of automotive electronic chip products. Mass production and installation have been achieved in the fields of automobile body and gateway control, powertrain, domain control, wire-controlled chassis, and vehicle network information security.
Investment advice: We believe that the company is deeply involved in the automotive electronics business. Although the business is under pressure in the short term, we are optimistic about medium- to long-term development. The company's revenue from 2023 to 2025 is estimated to be 625 million yuan, 968 million yuan, and 1,549 million yuan, respectively, and net profit of -36 million yuan, 133 million yuan, and 185 million yuan respectively. Since the company maintained a high level of investment in R&D and adopted the PS valuation method, taking into account the company's progress in automotive, cloud, and edge computing, etc., it gave 13 times PS in 24 years, with a target price of 37.5 yuan, maintaining a “buy-A” investment rating.
Risk warning: Downstream demand falls short of anticipated risks, increased market competition risks, and product development falls short of anticipated risks.