Revenue for the first three quarters was still under year-on-year pressure, and profitability improved markedly in Q3 compared to the previous month
According to IDC data, in Q3 2023, China shipped 1.96 million units of folding screen phones, an increase of 90.4% over the previous year. We have seen folding screens gradually mature in terms of price, thickness, and weight, and are expected to expand further in the future. The company's card folding screen shaft business achieved revenue of 8.4 billion yuan in Q3 (YoY: -12.9%,
QoQ: +75.3%), net profit attributable to mother was 150 million yuan (YoY: +25.1%, QoQ: +2183.2%), and Q3 profitability improved significantly year-on-month. Looking ahead to next year, we see: 1) the accelerated volume of folding screens will drive the company's shaft-related business growth, and we are optimistic that shaft assembly will continue to introduce new customers and contribute to revenue growth; 2) the subsidiary Antexin's management is gradually being optimized, and profitability is expected to improve; 3) downstream demand for consumer electronics will gradually recover. We gave the company a net profit forecast of RMB 2.1/28/320 million for 23/24/25. Referring to a comparable company's 2024 Wind's consistent expectation of 23 times the PE valuation, considering the company's MIM business development potential in the folding screen market, the 2024 PE valuation was given 24 times, and the target price was 36.5 yuan, maintaining the purchase rating.
Profitability increased month-on-month, and new business development helped improve the Q3 gross margin +4.58pct/month-on-month +9.93pct to 34.94%, net margin +5.16pct/month-on-month +16.74pct to 17.83%, mainly due to: 1) Continuously strengthening cost control, implementing dynamic project management strategies, and terminating terminal product loss businesses; 2) Optimizing product structures and vigorously developing non-MIM sectors. New business increases revenue growth. On the cost side, the cost rate for the Q3 period was 14.22% (YoY: +1.24pct; QoQ: -4.12pct), with sales/management/R&D/finance expenses rates of +0.57pct/-0.16pct/+1.39pct/+0.26pct to 1.23%/6.04%/6.58%/0.38%, respectively. In the first three quarters, reduced market expenses drove sales expenses -40.07% yoy, while financial expenses increased 590.38% compared to the same period last year due to increased exchange gains and losses.
Folding screens accelerate volume, and the card holder and shaft business drives revenue growth
In 3Q23, China's folding screen phone shipments increased by 90.4%, accounting for 3% of smartphone shipments. The folding screen phones from brands such as Honor, Huawei, and OPPO performed well in terms of weight and thickness. The company actively serves major mobile phone terminal customers, expanding from the hinge MIM parts business to the hinge assembly business. In the past two years, the share of revenue related to the folding screen business in overall revenue has increased year by year. Among them, 1) shaft MIM parts have been supplied to most well-known terminal brands; 2) folding screen hinge components have been mass-produced by two customer projects as of October 2023, and one customer has completed sample delivery certification. Looking forward to the future, we are optimistic about the company's card position advantage in the folding screen hinge-related business, and look forward to the increase in revenue brought about by the introduction of the company's products to more brand customers.
Give a target price of 36.5 yuan, buy
We gave the company a net profit forecast of RMB 2.1/28/320 million yuan for 23/24/25. Referring to a comparable company's 2024 Wind consensus average of 21 times PE, considering the company's MIM business's development potential in the folding screen market, a 24 times PE valuation was given in 2023, with a target price of 36.5 yuan, maintaining the purchase rating.
Risk warning: MIM process penetration rate falls short of expectations; folding screen phone shipments fall short of expected risk.