Key points of investment
On October 28, 2023, Chenzhan Optoelectronics released its 2023 three-quarter report. Affected by inflation and war, overall demand in the downstream market is weak, and the removal of inventory by the company's main customers has put pressure on the company's performance in the short term. In the first three quarters of 2023, the company achieved total operating income of 1,004 billion yuan, a year-on-year decrease of 31.29%, and net profit of 125 million yuan, a year-on-year decrease of 43.86%. In the third quarter of 2023, the company achieved total operating income of 326 million yuan, a year-on-year decrease of 30.71%, a year-on-year increase of 4.11%, and net profit of 43 million yuan, a year-on-year decrease of 48.87%, and a month-on-month increase of 0.01%.
The organization adjusts and integrates resources, and develops its own brands to increase gross profit margin. Since the beginning of 2023, the company has structured four regions based on the two OEM/OBM business models. Each team will carry out product planning according to customer attributes, and at the same time strengthen the exchange, replication and integration of business opportunities and experiences across regions to strengthen the company's sales capabilities. The company's own brand, MicroTouch, has integrated more resources in the direction of OBM, which accounts for a significant increase in the company's revenue share and also boosts the company's gross profit margin. In Q1-Q3 of 2023, the company's gross margin was 29.61%/33.44%/31.93%, respectively.
After the acquisition, it held 70% of Hongtong Technology's shares, starting a new growth curve for automotive displays. On September 28, 2023, the company announced that it would use about 180 million yuan to acquire 60% of Hongtong Technology's shares. After the transaction was completed, the company held a total of 70% of Hongtong Technology's shares. Hongtong Technology already has mature business and customers. Since 2012, it has cooperated with Tesla. Currently, it has achieved mass production of several models, and has also obtained new model targets. In addition, Hongtong Technology has also been selected by new domestic car manufacturers, and is actively participating in the central control assembly bidding of more car manufacturers. The NEV vehicle display industry has a large market space and a high growth rate. Hongtong Technology expects to increase its volume one after 2024, which will increase the company's revenue level.
Participating companies expand their business areas and increase profits. The company has a 30% stake in Shaanxi Ruixun Technology. Using Ruixun's many years of ARM architecture product development experience, the company enhances the efficiency and capabilities of motherboard development and overall system design, and expands its business into the field of IoT and edge computing with RuiXun's IoT product solutions. The company also participated in Yili Technology's pre-IPO equity investment round through a capital increase in ITH. In addition to strengthening existing supply chain relationships, the company also expects that after Yili Technology's listing, the company can achieve capital gains.
[Investment advice]
The company's main business was affected by war and inflation factors, and its performance was under pressure in the short term. The company holds 70% of the shares after completing the acquisition of Hongtong Technology. Hongtong's current international and domestic orders for new energy vehicles are expected to begin rolling out next year, bringing additional volume to the company's business revenue. According to the current situation of the company, we adjusted our previous profit forecast. It is estimated that the company's operating income for 2023/2024/2025 will be 1,501/25.21/3,041 billion yuan, net profit of 2.09/3.47/359 million yuan, EPS of 1.29/2.13/2.20 yuan, corresponding PE of 17/10/10 times, respectively, maintaining the “increase in holdings” rating.
[Risk Reminder]
Customer development falls short of expectations;
Risk of exchange rate fluctuations
Downstream market demand fell short of expectations.