The company's results for the first three quarters were under pressure, and Q3's single-quarter performance picked up marginally: the company achieved revenue of 1,654 billion yuan, +1.69% year over year; in Q3, the company achieved operating income of 699 million yuan, +37.70%, and +7.5% year over year; in the first three quarters, net profit to mother of 0.54 million yuan, net profit to mother of 0.23 million yuan in Q3, +17.03% month-on-month and -43.98% year-on-year. The company's performance rebounded steadily, and overall operating performance declined from month to month. Gradually narrowing.
The overall demand pressure in the H1 automobile market in '23 made the company's distribution business fall short of expectations, but there was a significant improvement in 23Q3: in the first three quarters of 2023, the company's electronic components distribution business revenue was 1,459 million yuan, which is basically the same as the same period last year; Q3's distribution business achieved revenue of 622 million yuan, +41.43% over the previous year. According to the Passenger Federation data, retail sales in the passenger car market reached 2.353 million units in December 2023, +8.5% year-on-year, and +13.1% month-on-month. It is expected that 23Q4's distribution business will continue to improve month-on-month. In the long run, the long-term development trend of electrification, intelligence, connectivity, and sharing in the automobile industry remains unchanged. Demand for automotive electronics continues to rise, and the use of bicycle electronic components continues to increase. The company's products cover four major fields, including automotive lighting, automotive cockpits, automotive passive devices, and automotive wire-controlled chassis. The electronic components distribution business will lay a solid foundation for the company's long-term steady growth.
Self-developed analog ICs continue to grow, which is the company's core growth engine in the future: in the first three quarters of 2023, the company's self-developed IC business performed outstanding, achieving revenue of 187 million yuan, +31.93% year-on-year; Q3 self-developed IC revenue was 74 million yuan, +17.30% month-on-month, and gross margin of 40.05%. Benefiting from the company's long-term layout and expansion in the field of automotive electronics, the company's automotive simulation IC products have a certain first-mover advantage. They have achieved batch loading at well-known domestic and foreign automobile manufacturers such as BYD, Geely, Xiaopeng, and NIO. The company's self-developed IC business is steady and improving, and has also laid a certain foundation for the subsequent development of the IC business.
Further improve overseas sales channels through mergers and acquisitions of WE: H2 completed the merger and acquisition of WE in '23.
As an agent distributor in the electronic components industry, WE has high-quality product line resources. Its main suppliers are internationally renowned manufacturers such as Hynix, Samsung, Secco, and Xinfeitong. It mainly distributes products such as memory chips, ceramic capacitors, chip resistors, adjustable lasers, etc., covering a wide range of sales areas, and has set up sales offices in many parts of Southeast Asia such as Vietnam, Malaysia, India and Thailand. This merger and acquisition helped the company develop overseas sales channels, further replenish the company's supplier resources, and lay the foundation for future distribution business growth.
Profit forecast, valuation and rating: Considering the company's performance in the first three quarters of 23 and the sentiment in the automotive market fell short of expectations, we lowered the company's 23/24 net profit forecast to 94 million (-63%)/193 million yuan (-46%), and added a 25-year net profit forecast of 263 million yuan. Currently, PE corresponding to market value is 39x/19x/14x. Although demand in the automotive market fell short of expectations in '23, we believe that the company's analog IC design has long-term growth momentum against the backdrop of a rapid increase in the localization rate, maintaining a “buy” rating.
Risk warning: risk of demand falling short of expectations in the automotive market; risk of impairment of goodwill.