Net profit to mother strengthened month-on-month in 4Q23
On 2/29, China Resources Micro released its 2023 performance report. The company's revenue in 2023 was 9.90 billion yuan, down 1.6% year on year, and net profit to mother was 1.48 billion yuan, down 43.5% year on year. 4Q23's revenue in a single quarter was 2,371 billion yuan, down 2.4% year on year, and net profit to mother was 407 million yuan, up 52.2% month on month. Market sentiment was low, but the company strengthened month-on-month in the fourth quarter, mainly due to the company's full capacity utilization rate, strong gross margin resilience on the BCD process platform, optimized power product structure, and relatively flat production line depreciation. Considering the intensification of competition in the industry in the future and the downward pressure on prices, we lowered our revenue forecast for 23/24/25 by 4/10/ 14%; lowered our net profit forecast by 12/32/ 30% to 14.80/15.68/16.67 billion yuan. We gave the company a 3.0 x 2024E PB, a 2.9 x premium compared to the company's average, mainly due to continuous optimization of the company's product structure and high capacity utilization rate. The target price was lowered to 52.32 yuan (previous value: 63.27 yuan), maintaining the “buy” rating.
Review: Gross margin outperforms industry average; inventory levels are healthy
China Resources Micro's 3Q23 gross profit margin was 31.7%, 9.4pp higher than the industry average. In 2023, the performance was steady against the backdrop of the cyclical decline in the industry. We think the main reason: 1) The company's product structure covers all categories such as power, analog, MCU, MEMS, etc. Under the half-power IDM half-fundry business model, production line adjustments are flexible, so the production capacity utilization rate is full. 2) The company's BCD and other process platforms are technologically advanced, scarce in mainland China, and have stronger bargaining power. 3) Production expansion is steady, depreciation and amortization growth rate is relatively moderate, and cost pressure is relatively small. China Resources Micro 3Q23 had an inventory turnover of 107 days (industry average: 145 days), maintaining a relatively healthy inventory size.
Outlook: The industry is still facing downward pressure. We are optimistic that the company will reduce costs and increase efficiency. We see that competition in the current industry is intensifying, and the OEM and power prices of the company's main business are still facing significant downward pressure, so we lowered our 2024/2025 gross margin by 2.3/2.2pp. At the same time, the company actively explores 12-inch lines to reduce costs and increase efficiency, and promote the development of ICBG intelligent drive and intelligent sensing, three and a half generations, high-end, and modular products. We are optimistic about the company: 1) Continuously enriching the product matrix, especially the expansion of new businesses such as safety MCUs, SiC, and masks; 2) maintaining a high level of capacity utilization through flexible adjustment to downstream demand; 3) 12-inch production lines in Chongqing and Shenzhen will increase capital efficiency.
Maintain the “buy” rating and lower the target price to $52.32
Considering the intensification of competition in the industry and the downward pressure on prices, we lowered our revenue forecast for 23/24/25 by 4/10/ 14%; lowered our net profit forecast by 12/32/ 30% to 14.80/15.68/16.67 billion yuan. We gave the company a 3.0 x 2024E PB, a 2.9 x premium compared to the company's average, mainly due to the continuous optimization of the company's product structure and full capacity utilization rate. The target price was lowered to 52.32 yuan (previous value: 63.27 yuan), maintaining the “buy” rating.
Risk warning: The risk of the semiconductor industry entering a downward cycle, and the risk that new technology and product development will not meet expectations.