Shunyu Optics' 2023 performance was slightly lower than our expectations
Shunyu Company announced its 2023 results: revenue fell 5% year on year to 31.7 billion yuan, which is basically in line with market expectations; net profit to mother fell 54% year on year to 1,099 billion yuan, falling within the company's previously forecast profit warning range of 1,084 to 1,404 billion yuan, slightly lower than our expectations. We believe that the company's fundamentals are under pressure in 2023:1) The profitability of optoelectronic products was significantly affected by the mobile phone industry's downsizing: although the company's mobile phone camera module product shipments increased 10% year-on-year in 2023, which is better than the overall performance of the industry, it will be disclosed according to the company's public performance. Among them, shipments of the highly profitable Periscope module and large image module fell 38.8% year on year to 43.436 million units. In addition, the gross margin of the company's product production capacity in 2023 was 5.5%, slightly lower than the market's previous expectations; 2) The mobile phone lens business is also under pressure from the industry to downgrade: according to the company's public results, shipments of 6P and above with higher specifications fell 20% year-on-year to 302 million units, causing the product structure to weaken.
But we also see that the company's operations are still resilient: 1) mobile phone module shipments in 2023 increased 10% year over year to 567 million units; mobile phone lens shipments fell 2% year on year to 1.17 billion units, outperforming the mobile phone industry market; 2) the share of vehicle-related revenue increased from 12.4% in 2022 to 16.7% in 2023, and the company's second growth curve is gradually being implemented. From a medium- to long-term perspective, we are optimistic that the company will become a platform-based precision optics manufacturer. Investors are advised to pay attention to the inflection point of the mobile phone industry chain and temporary the company's potential recovery trend.
Development trends
The mobile phone business is still under profit pressure in the short term, and the company's product competitiveness is leading. According to the 2023 public results conference, the company indicates that the gross margin of mobile phone camera modules will reach 5% in 2024, a slight increase compared with the profitability in 2023. This is reflected in the gradual clarification of the bottom signal after nearly two years of competition in the mobile phone optics industry. Looking ahead to 2024, we believe that with the return of major customers in Shenzhen and the company's high-quality competitiveness in the field of mobile phone optics, the profitability of the mobile phone division is expected to rise steadily.
Profit forecasting and valuation
Shunyu Optical Technology is currently trading at 30.4 times the 2024 price-earnings ratio and 24.7 times the 2025 price-earnings ratio. Considering that the profitability recovery rate of traditional mobile phone optical products is slightly lower than market expectations, we lowered our 2024/2025 net profit forecast by 26%/28% to 1.74 billion yuan/2.04 billion yuan. We maintain our outperforming industry rating; based on the market's relatively weak expectations for the mobile phone optics industry to recover innovation momentum, we lowered our target price by 23% to HK$63.4, corresponding 35.7 times 2024 and 29.0 times the 2025 price-earnings ratio, which has 17.5% upside compared to the current stock price.
risks
Global demand for mobile phone terminals continues to weaken, and progress in intelligent automobiles falls short of expectations.