Matters:
On January 29, 2024, the company released the 2023 annual performance forecast:
1) 2023: The company expects to achieve revenue of 70.60 to 7.413 billion yuan, a year-on-year decrease of 26.25% to 29.76%; expected to achieve net profit of 170 to 255 million yuan, a year-on-year decrease of 91.63% to 94.42%; and expected to achieve net profit of 0.36 to 54 million yuan after deduction, a year-on-year decrease of 98.12% to 98.75%.
2) 2023Q4: The company expects to achieve revenue of 20.43 to 2,396 billion yuan, a year-on-year increase of 31.10% to 53.75%, and -0.20% to +17.04%; it is expected to achieve net profit of 138-223 million yuan, turning a year-on-year loss into a profit, increasing 82.55% to 194.99% month-on-month; and is expected to achieve net profit of 1.61 to 179 billion yuan, an increase of 645.43% to 728.95% month-on-month.
Commentary:
The company's performance continued to improve month-on-month, and the increase in operating rate led to a marked recovery in profitability. Benefiting from the gradual recovery of the industry cycle, the company's operating rate continued to increase, and the fourth quarter's performance improved month-on-month. Based on the median estimate, the company expects to achieve operating income of 2,220 million yuan in 2023Q4, +42.42% YoY/+8.42%; it is expected to achieve net profit of 181 million yuan, turning a year-on-year loss into a profit, +138.77% month-on-month, and a marked recovery in profitability.
Looking forward to the future, demand continues to recover, and the increase in the company's capacity utilization rate is expected to drive improved profitability. With future production capacity implementation and the continuous expansion of new product process platforms, the company has broad room for growth.
The industry cycle continues to recover, and the company is expected to usher in a continued release of performance flexibility. The company's foundry is a typical asset-heavy industry. In the context of a downturn cycle, depreciation and labor costs will seriously erode the company's profitability. Currently, the DDIC industry continues to recover, and inventory removal from other product platforms such as CIS, MCU, and PMIC is gradually being completed. The company's capacity utilization rate continues to increase, and revenue is growing quarter by quarter. The company's performance is expected to continue to grow as subsequent demand from the industry continues to pick up and add revenue from the company's newly built production capacity.
The company continues to make breakthroughs in high-end manufacturing processes, and multiple processes+multiple platforms drive future performance growth. The company's 40nm OLED driver chip has been successfully developed and officially released, and 28nm product development is progressing steadily.
2023H1's 55nm, 90nm, 110nm, and 150nm account for 4.83%, 49.92%, 31.65%, and 13.60% of its main business revenue, respectively. In the future, with the implementation of 40/28nm production capacity, the company's more advanced process revenue share will further increase. As a global leader in LCD panel driver chip foundry, the company has significantly benefited from panel industry chain transfer opportunities, while other process platforms such as CIS, MCU, and PMIC continue to expand. As new processes and new process platforms continue to break through, the company's OEM share is expected to increase further.
Investment advice: The bottom of the industry cycle has passed. The panel industry chain is clearly shifting to mainland China. The expansion of the company's new process and new process platform is expected to open up room for growth. We maintain the company's net profit forecast for 2023-2025 at RMB 216/13.04/2.04 billion, and the corresponding EPS of RMB 0.11/0.65/1.20. Considering that the profitability of foundry companies fluctuates greatly, we adopted the PB valuation method, referring to industry comparable company valuations, and gave the company 1.5 times PB in 2024, corresponding to a target price of 18.2 yuan, to maintain a “strong push” rating.
Risk warning: the recovery of the industry boom falls short of expectations; competition in the industry intensifies; the company's process development falls short of expectations.