Matters:
On February 23, 2024, the company released the 2023 performance report and 2024Q1 performance guidelines:
1) 2023: The company achieved operating income of 7.244 billion yuan, -27.93%; net profit to mother 210 million yuan, -93.10% year-on-year; net profit after deduction of 45 million yuan, -98.45% year on year;? 2) 2024Q1: The company expects to achieve operating income of 20.7 to 2.30 billion yuan, +89.95% ~ 111.05% YoY, -7.05% ~ +3.28% month-on-month; expected gross profit margin of 22% ~ 29%, +13.98~20.98pct, and -6.36pct~+0.64pct month-on-month.
Commentary:
The company's performance continued to improve, and the increase in operating rate led to a marked recovery in profitability. Industry prosperity is gradually picking up. At the same time, the company's new technology and products are being provided incrementally, and the company's capacity utilization rate gradually increased, reaching more than 90% by the end of 2023, leading to a significant improvement in profitability. The company achieved revenue of 2,227 billion yuan in 2023Q4, +42.90%/+8.78% YoY; gross profit margin of 28.36%, +15.41pct/month-on-month +9.16pct.
Based on the median estimate, the company expects to achieve revenue of 2.85 billion yuan in 2024Q1, +100.50% year over year; it is expected to achieve a gross profit margin of 25.5%, +17.48pct year on year. The company's performance continues to improve, and domestic substitution has continued to be promoted in segments such as DDIC foundry. Since 23H2, the gross margin level has been significantly higher than that of domestic friends and merchants.
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 continues to strengthen its technical capabilities, achieving mass production of 55nm CIS and 55nm TDDI products. The 110nm DDIC for vehicles has passed the company's customers' 12.8-inch display assembly reliability tests to accelerate the expansion of the company's products into the automotive market. 40nm OLED driver chips have been successfully developed and officially released, and 28nm product development is progressing steadily. 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. Considering the slow recovery in terminal demand, we lowered the company's 2023-2025 net profit forecast from RMB 216/13.04/RMB 2.04 billion to RMB 2.10/10.00/RMB 1,768 million, corresponding EPS of 0.10/0.50/0.88 yuan. 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 1.6 times PB in 2024, corresponding to a target price of 19.2 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.