Event: The company announced the “Report for the Third Quarter of 2023”.

Benefiting from the company's strong shipments of Bluetooth audio and smartwatches, performance in the first three quarters increased.

From January to September 2023, the company achieved revenue of 376 million yuan, +22.31% year-on-year, and realized net profit of 47 million yuan, -3.56% year-on-year. Looking at a single quarter, 2023Q3 achieved revenue of 157 million yuan, +64.92% year-on-year, +13.80%; net profit of 22 million yuan, +76.22% year-on-year, and +33.12% month-on-month.

The product delivery structure was improved, and the company's Q3 gross margin increased significantly over the same period last month. From January to September 2023, the company achieved a gross profit margin of 43.04%, +2.77pct year-on-year; net profit margin was 12.47%, -3.35pct year-on-year. Looking at a single quarter, the gross margin of 2023Q3 was 45.48%, +5.49pct year-on-year, +4.03pct; the company's net profit margin was 14.16%, +0.91pct year-on-year, +2.06pct month-on-month.

Smartwatch market companies have been working early, and it is expected that brand manufacturer projects will continue to be implemented. The products that the company collaborated with Xiaomi in 2023 have already been launched, and the market performance is impressive. The company is the first manufacturer in the industry to release a dual-mode Bluetooth single-chip solution. Currently, we have launched a second-generation smartwatch chip, which uses a new generation of low-power technology, and has new features such as dual GPU acceleration, JPEG hardware decoding, video dial, and dual mic call noise reduction. The product layout and competitiveness have been strengthened, and the performance is excellent in terms of battery life and interactive experience.

The company has advanced technology for low latency and high sound quality products, and market demand continues to open up. The company's low latency high sound quality products are developed based on the 2.4G wireless communication private protocol, and can reach a minimum delay of less than 10 ms. At the same time, based on the company's next-generation RF design and wireless anti-interference related technology, it can achieve stable high-quality audio transmission under low latency throughout the entire link, which is at the leading level in the industry. Judging from the market space, there is a clear trend of shifting existing wired connection products to low latency wireless connections.

The high-end Bluetooth audio market will maintain a high growth rate, and the company still has a lot of room for growth. According to SIG's forecast, the annual shipment volume of Bluetooth audio transmission devices alone will reach 1.84 billion units by 2027, and the compound annual growth rate from 2023 to 2027 is 6%. The direction of the overall Bluetooth audio market is growing. The company's share in the high-end brand Bluetooth speaker market has room for multiple growth. The company will continue to increase its penetration rate in high-end brands through continuous product iterative upgrades and product portfolio optimization.

Profit forecast: We expect the company's net profit for 2023/2024/2025 to be 0.7/103/170 million yuan, respectively, and 62/42/26 times the PE stock price corresponding to November 1, respectively, maintaining the “buy” rating.

Risk warning: New product development falls short of expectations, downstream demand is weak, and client volume falls short of expectations.