4Q23 fell short of our expectations
The company announced 4Q23 results: 4Q23 revenue of HK$3.4 billion (US$435.4 million), YoY -21.4%, QoQ -2%; additional orders of HK$2.74 billion (US$350 million), YoY -12.2%, QoQ -7.6%, order-shipment ratio 0.83; gross margin of 42.3%, YOY+0.87ppt, QoQ+8.12ppt; net profit of HK$75.7 million, YoY -71.6%, QoQ +493.4%. At the end of 4Q23, the company had outstanding orders of HK$6.61 billion (US$846 million). The recovery of traditional equipment was weak, and the 4Q23 performance fell short of our expectations. The company directed 1Q24 revenue between $37-$4.3 billion.
Development trends
SEMI business: 4Q23, SEMI business revenue of HK$1,594 million (US$204 million), YoY -15.3%, QoQ +1.2%, accounting for 43% of total current revenue; additional orders of HK$1,243 million (US$159 million), YoY +10.5%, QoQ -6.2%; gross margin of 43.8%, YOY-0.66ppt, QoQ+11.87ppt. Due to the steady revenue performance of the IC and discrete device business, the optoelectronics business continued to grow, and the favorable product structure led to an increase in 4Q23 gross margin.
SMT business: 4Q23, SMT business revenue of HK$1,811 million (US$232 million), YoY -4.7%, accounting for about 57% of total current revenue; additional orders of HK$1,493 million (US$191 million), YoY -25%, QoQ -8.7%. The automotive and industrial SMT business became normalized, and order volume contracted; gross margin of 41%, YOY+1.88ppt, QoQ+4.93ppt.
Downstream distribution: In 2023, automobiles accounted for about 22%, industry reached about 16%, and consumer electronics, computers, and communications were 14%, 12%, and 11%, respectively. Among them, the share of automotive electronics and computers increased, while the share of consumer electronics and telecommunications declined. The automotive and industrial markets remain the main drivers of the company's steady growth, while consumer electronics, communications and computer market performance continues to slow due to weak consumer desire.
Advanced packaging business (AP): In 2023, the company's TCB business (hot pressure welding) customer recognition continued to increase, and the customer base of 100 million dollars expanded from IDM to HBM, foundry and OSAT customer groups, mainly used in the generative artificial intelligence industry chain. In 2023, the company's HB (hybrid bonding) business received an order for two units for the first time, and they will be delivered in the second half of 2024. We believe that the TCB business and HB business are expected to continue to gradually increase order volume and global share under the generative artificial intelligence industry trend, and both revenue scale and share are expected to increase.
Profit forecasting and valuation
Considering the positive impact of the current order structure on gross margin, net profit for 2024 was raised by 5% to HK$1,898 million, and revenue of HK$18.624 billion for 2025 was introduced, and net profit of HK$2,489 billion was introduced.
The current company valuation corresponds to 20.1 times 2024 P/E and 15.3 times 2025 P/E. Maintain an outperforming industry rating. Considering the company's breakthrough in the AP sector, the target price was raised by 44% to HK$115, corresponding 25 times the 2024 P/E and 19 times the 2025 P/E, with 25% upside compared to the current stock price.
risks
Terminal demand is under pressure; advanced packaging orders have fallen short of expectations.