On October 28, 2023, Vail Co., Ltd. announced its 2023 three-quarter report. The company's performance reversed its decline and achieved a significant increase from month to month. In the first three quarters of 2023, the company achieved total operating income of 15.081 billion yuan, a year-on-year decrease of 1.96%, and net profit of 368 million yuan, a year-on-year decrease of 82.86%. In the third quarter of 2023, the company achieved total operating income of 6.223 billion yuan, a year-on-year increase of 44.35%, a year-on-year increase of 37.28%, and net profit of 215 million yuan, a year-on-year increase of 279.41%, and a year-on-month increase of 570.70%.
Downstream smartphones have bottomed out and picked up, and the continued boom in the automotive market has contributed to growth. 70% of 23H1's revenue comes from the image sensor business, of which three-quarters comes from the smartphone and automotive electronics industries. According to data from Canalys market research agency, in 2023Q3, the decline in global smartphone shipments has narrowed to 1%, and signs of market recovery are beginning to show. Automobile shipments continued to rise. The European and American markets increased by more than 10% year-on-year in the second and third quarters, and automobile CIS used in Surround View, L2 ADAS, and in-flight driver monitoring began to be released. In addition, the company has also achieved continuous and steady growth in the industrial CIS sector.
The results of inventory removal are obvious, and gross margin is under pressure in the short term. The company's inventory for the third quarter was 7.552 billion yuan. Compared with 23H1's 9.828 billion yuan, there was a significant month-on-month decline, and the company removed inventory faster. The company's inventory of OV64B is expected to be sold out by the end of this year. The gross margin level of this series of original inventory after the inventory price drop was low, reducing the company's overall gross profit margin. In 23Q3, the company's gross profit margin was 21.78%, down 6.65 pct from the previous year, but there was a recovery of 4.48 pct compared to the first half of the year. After inventory removal is completed, the gross margin of this series of products is expected to improve as supply and demand relationships and market prices change.
Impact the high-end main camera market. The company's OV50H product layout is a high-end main camera. This sensor has a 50 megapixel high-resolution image sensor, 1.2 micron pixels, and 1/1.3 inch optical format, which technically proves the company's leading level in R&D capabilities and system skills.
The newly released Xiaomi 14 Pro is equipped with OV50H, a light hunter that collaborates with the company. The company has been recognized by Xiaomi and other terminal manufacturers. Under the trend of domestic replacement, the company's revenue in the high-end smartphone camera market is expected to grow.
[Investment advice]
The Q3 profitability of Vail shares has improved dramatically, and the recovery in downstream sector prosperity combined with inventory removal is expected to bring about a recovery in the sector's valuation. At the same time, high-end main camera products are starting a new cycle of growth for the company.
We have adjusted our profit forecast. It is estimated that in 2023-2025, the company's revenue is 218.59/260.78/30.746 billion yuan, net profit of 11.84/25.50/4,066 billion yuan, EPS is 1.00/2.15/3.43 yuan, and corresponding PE is 111/52/32 times, maintaining the “increase in holdings” rating.
[Risk Reminder]
The recovery of downstream consumption fell short of expectations, and the industry cycle continued to go offline;
The promotion and application of new products among terminal manufacturers falls short of expectations;
Competition in the industry intensified, and the recovery of the company's gross margin fell short of expectations.