Description of the event
On October 30, 2023, MeiG Intelligence released its report for the third quarter of 2023: in the first three quarters of 2023, the company achieved revenue of 1,560 billion yuan, -13.3% year-on-year; net profit to mother of 69 million yuan, or -43.9% year-on-year. In the third quarter of a single quarter, the company achieved revenue of 537 million yuan, -20.6% year-on-year, and -7.4% month-on-month; realized net profit of 20 million yuan, or -44.7% year-on-year, and -34.4% month-on-month.
Incident comments
Weak demand is hampering revenue performance, and the share of direct revenue from overseas customers continues to rise. The company's Q3 revenue performance declined year-on-year. Among them, net profit declined significantly, compared to -44.7%. We believe that the main reason for the decline in the company's revenue was that demand from the company's traditional IoT industry customers and FWA customers was still weak. These two businesses accounted for a relatively high share of about 70%, dragging down the company's overall revenue performance. Shipments from major customers in the automotive business were supported and maintained good growth. In addition, there has been a slight change in the company's revenue structure. As of 2023H, the company's overseas business accounted for 31%. Compared with the same period last year, the company has made significant efforts to expand in the overseas sector, and is expected to maintain around 30% throughout the year.
The gross margin remained flat in a single quarter, and investment in R&D and sales continued to increase. The company's gross margin for the third quarter of 2023 was 17.05%, -0.1 pct year on year; net margin was 3.69%, -1.6 pct year on year. The company's gross margin was basically the same year on year, and net profit margin declined a lot. The company's Q3 sales/management/finance/R&D expense rates were 2.5%/2.4%/1.3%/9.8%, respectively, +0.6pct/+0.4pct/+0.8pct/+1.1pct. The company's R&D expenses have increased significantly. In terms of R&D, the company has mainly increased investment in 5G smart cockpits, 5G smart T-boxes, and high-computing AI modules. At the same time, the company's sales expenses have increased significantly in the process of business expansion, mainly due to the increase in sales staff salaries and travel expenses.
Continue to cultivate the computing power module product line, and accelerate the evolution of high computing power products. With the introduction of various general-purpose models, industry-wide models, and end-side large models, the demand for model-side and terminal-side computing power will increase dramatically, driving the penetration rate of high-computing power AI modules in the overall module industry to accelerate. The company increased investment in marketing and R&D of computing power module products, pioneered the launch of high-computing power modules with a comprehensive AI computing power of 48T in the industry, and continuously promoted the development of high-computing power AI module categories. The company's high computing power module products present a flexible configuration of computing power+algorithm+communication. Standard AI computing power, customized commercial AI algorithm software and hardware environments & optional communication capabilities will fully benefit from the implementation of applications requiring high computing power such as AIGC, general models, and large industry models.
Profit forecast and investment advice: Affected by the still weak demand from the company's traditional IoT industry customers and FWA customers, the company's revenue and profit declined in 23Q3. The company's gross margin remained flat in a single quarter. The obvious decline in net profit margin was mainly due to the rapid increase in sales and R&D expenses and increased investment in new fields and new customers. As demand for module-side and terminal-side computing power grows rapidly, high-computing power AI modules will accelerate penetration. As the earliest computing power module product in the industry, the company has a comprehensive product lineup and will fully benefit from the implementation of applications requiring high computing power such as AIGC, general models, and industry models. We estimate that the company's net profit for 2023-2025 will be 1.02/1.56/198 million yuan, respectively, and the corresponding PE will be 73/48/38 times, respectively, maintaining a “buy” rating.
Risk warning
1. Market development and market competition risks in the field of wireless communication modules and solutions; 2. Risk of loss of core technicians and leakage of core technology.