Matters:
On February 23, 2024, the company issued an announcement of the 2023 annual results report:
1) 2023: Operating income of 3,536 billion yuan, -0.07% year on year; net profit to mother of 725 million yuan, -32.69% year on year; net profit after deduction of 599 million yuan, -41.26% year on year;
2) 2023Q4: Operating income of 798 million yuan, -4.36%/-15.24%; net profit to mother of 75 million yuan, -65.71%/-62.84% yoy; net profit after deduction of -0.05 billion yuan, year-on-month loss.
Commentary:
Short-term performance is under pressure, and the recovery in high-reliability business volume+demand is expected to drive the company's performance back to a growth trajectory.
Affected by factors such as structural reduction in production capacity and inventory removal in the industrial chain, the company's performance was under pressure. In 2023Q4, it achieved operating income of 798 million yuan, -4.36% YoY/ -15.24%; due to price adjustments and product structure of some product lines, the 2023Q4 achieved a gross profit margin of 50.03%, -13.49pct/month-on-month, -13.49pct/-9.73pct; R&D expense ratio was 31.67%, YoY/M +10.64pct/+7.22pct. The company's profitability in the fourth quarter was low due to a decline in gross margin and an increase in R&D expenses. Looking ahead, the company's performance is expected to return to a growth trajectory as the volume of high-reliability new products combined with the recovery of downstream demand such as MCUs.
The company's leading edge in high-reliability business technology is remarkable, and product differentiation remains in strong demand. The company took the lead in successfully developing billion-level FPGA and PSoC chips in China. About 35% to 40% of the 2023H1's FPGA revenue is contributed by PSoC products, and the volume of high-end products enables the company to maintain a leading competitive advantage. The 2023Q1-3 FPGA and other chips achieved revenue growth of more than 50% year over year, far higher than domestic peers. The company is promoting a new generation of billion-level FPGA products based on 1xnm FinFET advanced manufacturing processes. Under its technical advantages, the company continues to benefit from the trend of localization, and the gradual introduction of new products will provide the company with a continuous growth engine.
The company's MCU and other businesses have gradually broken out of their trough, and product upgrades are expected to return to the growth trajectory. Since the second half of 2022, the company's MCU and non-volatile memory business has been under great pressure, and the short-term pressure on the consumer goods business has had a significant impact on the company's short-term performance. With the gradual completion of the industry's inventory removal, the company's MCU and other products gradually broke out of the industry trough, and the 2023Q3 MCU business revenue increased 16.67% month-on-month. The three major product lines of safety and identification chips, non-volatile memories, and MCUs have all entered the automotive electronics field. As the product structure and customer structure continue to be optimized and upgraded, future performance growth is worth looking forward to.
Investment advice: As an established IC design company, the company continues to benefit from domestic replacement opportunities, and FPGAs have entered the harvest period. Considering the short-term pressure on the company's consumer demand, we lowered the company's 2023-2025 net profit forecast from 813/12.49/1,622 million yuan to 725/9.37/1,083 million yuan, corresponding EPS of 0.88/1.14/1.32 million yuan. Referring to the industry's comparable company valuation and its own performance growth rate, we gave the company 35 times PE in 2024, corresponding to a target price of 40.0 yuan/share to maintain a “strong” rating; the company was given a discount rate of 40% for AH shares, that is, 14 times PE in 2024, corresponding to a target price of 17.6 HKD/share, maintaining a “strong push” rating.
Risk warning: downstream demand falls short of expectations; new product launches fall short of expectations; production capacity support falls short of expectations; risk of changes in the external trade environment.