We forecast a net profit loss of 0.30-36 million yuan in 2023, which is in line with our expectations as a whole

The company announced its 2023 performance forecast: operating income for 2023 is expected to be 1,800-1,095 million yuan, down 38.60-39.44% year on year; compared with profit loss for the same period last year, net profit loss attributable to shareholders of listed companies is expected to be 0.30-036 million yuan, net profit loss after deducting non-recurring profit and loss of 1.05 to 115 million yuan. We believe that the pressure on the company's performance for the full year of 2023 is mainly due to weak downstream demand and increased competition in the industry. Revenue and net profit are basically in line with our expectations.

Key points of interest

Short-term performance was affected by demand, revenue improved month-on-month, and cash on the books was abundant. According to our estimates, the 4Q23 company's median revenue was 274 million yuan, corresponding to a 36% month-on-month increase; the median net profit loss for 4Q23 was 49 million yuan. We believe that: 1) Considering that downstream recovery in industry, communications, etc., it still takes time, compounding the company's price strategy, short-term prices may still be under pressure; 2) According to the company's official website, the company will launch new products such as PMIC and MCU in the second half of 2023, and we expect that the company's market share will continue to increase, gross margin or gradually stabilize with the launch of new products; 3) By the end of 3Q23, the company had a total of 2.63 billion yuan in monetary capital and transactional financial assets.

The proposed acquisition of Chuangxin Micro, a power management target, is expected to reinforce the company's battery/power management product line. According to the company's announcement, the company plans to acquire 85.26% of Chuangxinwei's shares in consideration of 890 million yuan through the issuance of convertible bonds and cash. The performance pledge promised that Chuangxinwei's total net profit for 2024-2026 will not be less than 220 million yuan. Chuangxin Micro is deeply involved in the field of battery/power management chips, and its products are mainly used in the consumer sector.

We believe this acquisition is expected to accelerate the company's power supply product layout and further expand the consumer market.

The company issued an equity incentive plan and share repurchase announcement, demonstrating confidence in development: 1) On December 22, the company announced a new equity incentive plan. Corresponding to revenue in 2023, the target trigger values for each year are: revenue growth rate of not less than 25% in 2024, revenue growth rate of not less than 43% in 2025 or not less than 168% cumulative in 2024/25, revenue growth rate of not less than 62% in 2026, or not less than 330% cumulative in 2024/25/26. 2) A share repurchase announcement was issued on January 30. The proposed repurchase price is no more than 150 yuan/share, and the total repurchase capital is 1-2 billion yuan, mainly for equity incentives, employee shareholding, and convertible debt-to-share swaps. We believe that this equity incentive and buyback reflects the company's growth confidence in 2024-2026.

Profit forecasting and valuation

Taking into account the effects of changes in share payment amortization and the recovery of downstream demand, we lowered our profit forecast for 2023 from $39 million to a loss of $33 million, and reduced profit for 2024 by 20% to $175 million; for the first time, we introduced a profit of $324 million for 2025. Maintaining an outperforming industry rating, we lowered our target price by 18.4% to 137.99 yuan, corresponding to the 35x forward price-earnings ratio and 8.9% discount rate in 2027, which has 42.7% upside compared to the current stock price.

risks

Downstream prosperity falls short of expectations; asset acquisition progress falls short of expectations; industry competition intensifies, etc.