Core views

Affected by weak industry demand, declining company revenue, and large investment in sales and R&D, etc., the decline in profit exceeded the decline in revenue. However, the company's product and client layout is progressing smoothly. In the future, with the recovery of the global economy, performance is expected to gradually resume good growth. AI, edge computing, etc. are expected to bring new opportunities to the IoT module industry. The company continues to increase investment in computing power modules and intelligent modules, and has launched a variety of products, corresponding to AI computing power covering 0.2T-48T, which is expected to bring additional elasticity. Changes in product structure led to a good increase in gross margin in the first three quarters, and future profitability is expected to increase.

occurrences

The company released its three-quarter report for 2023. The first three quarters of 2023 achieved revenue of 1,560 billion yuan, a year-on-year decrease of 13.34%, and realized net profit of 68.66 million yuan, a year-on-year decrease of 43.91%.

Brief review

1. Weak overall demand, declining revenue, and increased investment have led to a larger decline in profit.

The company released its 2023 three-quarter report. In the first three quarters of 2023, the company achieved revenue of 1,560 billion yuan, a year-on-year decrease of 13.34%; realized net profit of 68.66 million yuan, a year-on-year decrease of 43.91%; and realized net profit of 43.91% after deduction of net profit of 43.15 million yuan, a year-on-year decrease of 47.66%.

The decline in the company's revenue is mainly due to the slow recovery of the global economic environment and the fact that demand in the IoT industry is still weak. The decline in the company's profit exceeds the decline in revenue, mainly due to a year-on-year increase in R&D and sales expenses, a year-on-year increase in credit and asset impairment losses, and a year-on-year decrease in earnings from changes in the fair value of foreign investment.

In the third quarter of 2023, the company achieved revenue of 537 million yuan, a year-on-year decrease of 20.60%; realized net profit of 2001 million yuan, a year-on-year decrease of 44.73%; and realized net profit of 18.96 million yuan after deduction, a year-on-year decrease of 46.21%.

2. Gross margin increased year-on-year, and sales and R&D expenses increased significantly.

In the first three quarters of 2023, the company's comprehensive gross profit margin was 19.25%, up 1.63pct year on year. The year-on-year increase in gross margin was mainly driven by changes in the structure of shipped products.

The company continued to increase R&D and market investment. Sales expenses and R&D expenses increased significantly in the first three quarters, of which sales expenses were 42.33 million yuan, an increase of 30.43% over the previous year, and R&D expenses of 156 million yuan, an increase of 15.04% over the previous year. Management expenses for the first three quarters were 39.7 million yuan, up 4.11% year on year, and the company's financial expenses were 9.35 million yuan, down 17.52% year on year.

3. The product array of computing power modules and intelligent modules continues to be enriched, and a variety of products have been launched, with corresponding AI computing power coverage of 0.2T-48T.

The AI model is expected to gradually sink to the terminal side, and the computing power requirements on the edge side are increasing, which will drive demand for intelligent modules and computing power modules. The medium to long term momentum can be expected optimistically. The company is actively building products. Currently, the SNM920, SNM930, SNM950, SNM960, and SNM970 series are on the market. The corresponding AI computing power covers 0.2T-48T, and continues to expand in emerging industries such as automotive, cloud servers, industrial Internet machine vision products, drones, and robots. In the future, with the upgrading of informatization and intelligence throughout the industry and the development of the artificial intelligence industry, the company's computing power modules and intelligent module products have broad room for growth.

4. Profit prediction and investment advice.

Affected by weak industry demand, the decline in company revenue in the first three quarters of 2023, and large investment in sales and R&D, etc., the decline in net profit of the mother exceeded the decline in revenue. However, the company's product and client layout is progressing smoothly. In the future, with the recovery of the global economy, performance is expected to gradually resume good growth. AI, edge computing, etc. are expected to bring new opportunities to the IoT module industry. The company continues to increase investment in computing power modules and intelligent modules, which is expected to bring new elasticity.

Changes in product structure have led to a better increase in gross margin, and future profitability is expected to increase. We expect the company's revenue from 2023 to 2025 to be 2.21 billion yuan, 2.81 billion yuan, and 3.59 billion yuan respectively, net profit of 90 million yuan, 130 million yuan, 190 million yuan, and 190 million yuan respectively. The corresponding PE is 79x, 54x, and 38x respectively, maintaining the “buy” rating.

5. Risk warning. Changes in the macroeconomic environment affect demand. Weak downstream demand for vehicles, FWA, pan-IoT, etc., has caused the company's business development to fall short of expectations; industry competition intensifies, affecting the company's supply share of major customers, or leading to a decline in the company's gross margin; the company's product iteration falls short of expectations or R&D investment results have failed to meet expectations, affecting the company's product sales; the shortage of raw materials such as chips and price increases have exceeded expectations, causing the company's gross margin margin to fall short of expectations; large fluctuations in the exchange rate affect the company's financial expenses and procurement costs, thereby affecting the company's net profit margin; the company's production efficiency has improved, Supply chain optimization and cost control have not progressed as expected; changes in the international environment have affected the company's supply chain security and overseas expansion, etc.