3Q23 performance fell short of our expectations
Sirep announced 3Q23 results. Due to weak downstream demand combined with fierce competition in the industry, the company's performance fell short of our expectations. In the first three quarters of 2023, the company achieved operating income of 813 million yuan, a year-on-year decrease of 44.63%, and net profit of 16.3 million yuan, a year-on-year decrease of 94.11%. Looking at a single quarter, the company achieved operating income of 201 million yuan in 3Q23, a year-on-year decrease of 57.25%; net profit of 2.22 million yuan, a year-on-year decrease of 94.71%; and the company's gross margin was 50.02%, down 1.59ppt from the previous year.
Development trends
Short-term demand is weak, and prices and gross margins are under pressure. The company's comprehensive gross margin for the first three quarters was 53.58%, a year-on-year decline of 4.93ppt. Among them, the gross margin of power management/signal chain chips was 47.20/ 55.19%, respectively, a year-on-year decrease of 2.64/6.95ppt. We believe that the short-term pressure on the company's gross margin is mainly due to product restructuring. At the same time, the company adjusts its price strategy to stabilize market share and expand new products. In the long run, we are still optimistic about the synergy brought about by the company's platform-based layout.
Actively promote the layout of the industrial chain, and the competitiveness of products continues to increase. The company is committed to improving the synergy of the industrial chain. According to the minutes of the company's public investor relations activities, in terms of wafers, the company lays out COT's own wafer process platform; in the packaging process, the company and suppliers jointly develop packaging process platforms; in the testing process, the company's own testing plant in Suzhou is expected to be put into trial operation around the end of 2023. We believe that by continuing to promote industrial chain collaboration, the company is expected to significantly improve the key performance of products, reduce production costs, and build a high competitive barrier for the company's products.
Accelerate product line expansion, and MCU and vehicle specification products are progressing smoothly. The company focuses on the three major fields of pan-industry, pan-communication and automotive, and continues to enrich its product matrix. According to the records of the company's public investor relations activities, as of 3Q23, the company has mass-produced nearly 100 car regulation products, and the bicycle value of the products continues to rise. We believe that automobiles, as a booming racetrack, are expected to empower the company's long-term growth. On the MCU side, according to the minutes of the company's public investor relations activities, as of 3Q23, the company's first MCU is already in the mass production promotion stage. We believe that the MCU is expected to collaborate with the company's analog chip products, thus further accelerating the customer introduction process.
Profit forecasting and valuation
Considering weak downstream demand, we lowered the company's 2023/2024 operating income by 38.9/ 34.1% to 11.23/1,604 billion yuan; the 2023/2024 net profit was reduced by 86.8/ 57.3% to 0.39/218 million yuan.
Maintaining an outperforming industry rating, the target price was lowered by 34.5% to 169.19 yuan, corresponding to the forward price-earnings ratio of 35 times in 2027 and a discount rate of 8.5%, mainly based on the valuations of comparable companies. The target stock price has 6.0% room to rise compared to the current stock price.
risks
New product development falls short of expectations; customer introduction falls short of expectations; increased industry competition, etc.