occurrences

The company released the 2023 performance report. In 2023, the company achieved operating income of 7.244 billion yuan, -27.93%; realized net profit attributable to mother 210 million yuan, -93.10% year-on-year; realized net profit of 44.723 million yuan, or -98.45% year-on-year. In Q4 2023, the company achieved operating income of 2,227 billion yuan, net profit attributable to mother of 178 million yuan, net profit after deducting non-return to mother of 169 million yuan, and gross margin of 28.36%.

In addition, the company also issued the 2024 Q1 performance guidance announcement. It is estimated that Q1 will achieve revenue of 20.70 to 210 billion yuan and a comprehensive gross profit margin of 22% to 29%.

Key points of investment

Market demand picked up, operating rates increased steadily, and Q4 and Q1 performance increased significantly year-on-year.

In 2023, the company achieved operating income of 7.244 billion yuan, -27.93%; realized net profit of 210 million yuan, -93.10% year-on-year; realized net profit of 44.723 million yuan, or -98.45% year-on-year. Since Q3 2022, the global integrated circuit industry has entered a downward cycle. Consumer electronics markets such as smartphones and laptops have declined, overall market demand has slowed, and the supply chain continues to adjust inventory. As a result, global foundry has faced varying degrees of decline in capacity utilization and revenue decline, while fixed costs such as depreciation and amortization are high in the company's cost structure, leading to a year-on-year decline in the company's revenue and product gross profit level. However, since Q2 2023, the downstream inventory removal situation has achieved certain results, and market demand has begun to pick up. The company has actively adjusted sales strategies, increased market development efforts, and improved production efficiency. In addition, with the help of new technology and new products, the company's capacity utilization rate gradually increased, reaching more than 90% by the end of 2023, and the level of operating income and product gross profit increased steadily during 2023. In Q4 2023, the company achieved operating income of 2,227 billion yuan, +42.90% YoY, +8.78%; realized net profit of 178 million yuan, +153.76% YoY, +135.56% month-on-month; realized net profit of 169 million yuan, +688.18% month-on-month; gross profit ratio of 28.36%, +0.17pcts YoY, +8.41pcts month-on-month. In Q1 2024, the company continued its year-on-year growth trend. Q1 is expected to achieve revenue of 20.70 to 230 billion yuan, median value of 2.85 billion yuan, +89.95% ~ 111.05% YoY, -7.05% ~ +3.28% month-on-month; comprehensive gross profit margin 22% ~ 29%, median 25.50%, YoY +13.98~20.98 pcts, and -6.36pcts~+0.64pcts month-on-month.

R&D has been stepped up, high-end manufacturing processes have continued to break through, and the layout of emerging fields has been accelerated. In 2023, the company's R&D expenses increased by about 200 million yuan compared to 2022, an increase of about 23% over the previous year. The company is continuously committed to enriching its product structure and strengthening its technical capabilities. It continues to invest more in the 55nm-28nm process and automotive chip research and development, and has achieved remarkable results. 55nm CIS and 55nm TDDI products were mass-produced, further enhancing the company's product market competitiveness. 55nm products continued to be fully loaded, and revenue increased steadily. The 40nm high voltage OLED driver chip has been successfully developed and officially launched, and the development of 28nm logic and OLED chip products is progressing steadily. In addition, the company's 110nm display driver chip has passed the company's customer's 12.8-inch automotive display assembly reliability test to accelerate the expansion of the company's products into the automotive market. In emerging fields such as AR/VR, the company is also actively developing silicon-based OLED technology for AR/VR miniature display technology, and has developed in-depth cooperation with leading domestic panel companies and accelerated application implementation.

Investment advice

We expect the company to achieve revenue of 72.44/101.00/14.071 billion yuan in 2023-2025, and achieve net profit of 2.10/8.76/1,540 billion yuan, respectively. The closing price on February 29 corresponds to the 2023-2025 PB of 1.33/1.28/1.21 times, respectively, maintaining a “buy” rating.

Risk warning

Downstream demand falls short of expectations; R&D progress falls short of expectations; production expansion falls short of expectations; market competition intensifies.