2023 results fell slightly short of our expectations
Gaowei Electronics announced 2023 results: revenue fell 17% year over year to US$924 million, and net profit to mother fell 45% year over year to US$47 million, lower than our expectations by 18%/lower than the market's agreed forecast of 24%. The company's performance in 2023 is under pressure in the short term. We believe that the main reasons are: 1) poor sales of tablet products from major North American customers, which dragged down the company's related product shipment performance; 2) compared to the fluctuating exchange rate environment in 2022, the company's exchange earnings in 2023 were relatively stable; 3) the introduction of new product production lines later required more R&D and operating expenses.
Although the 2023 performance is under pressure in the short term, looking ahead to 2024, we believe that Gaowei Electronics is closely cooperating with major North American customers and is expected to gain further share in the field of mobile phone rear cameras and MR camera modules. Looking at the medium to long term, we believe that Gao Weizheng is gradually becoming one of Lixun Group's important strategic puzzles. The company's performance growth rate is expected to be superior to that of the mobile phone optical industry, and investors are advised to pay active attention.
Development trends
Tablet products continue to slow down performance, and new mobile phone rear camera products are progressing smoothly. According to TechInsights, the global tablet market shipped around 137 million units in 2023, down 16% year over year. As one of the main suppliers of tablets for major North American customers, Gao Wei believes that although the company still has a stable market share, the decline in industry shipments may have dragged down the company's 2023 tablet module shipments, causing the company's overall revenue to drop 17% year on year in 2023. Looking ahead to 2024, we continue to be optimistic that Gaowei Electronics will maintain its mobile front camera supply chain position with its high-quality management experience and manufacturing capabilities. At the same time, in terms of rear-view new products, we believe that the company is progressing smoothly with the introduction of ultra-wide-angle/periscope models. We recommend that investors pay close attention to the rise in mass production of 2H24 related products. We believe that the successful introduction of new products may show a significant increase in the company's performance.
MR products are expected to have a second growth curve. Along with the continuous mass production and preparation of MR products from major North American customers, we believe that Gaowei, as one of the core camera module suppliers, can help improve the interaction of MR products, and that the continued release of MR may make a new incremental contribution to the company's performance.
Profit forecasting and valuation
The current company's stock price corresponds to 18.4 times 2024 and 10.4 times the 2025 price-earnings ratio. We maintained the company's 2024 profit forecast at $105 million, while introducing a 2025 profit forecast of $187 million. Considering that the company is closely cooperating with major North American customers and is expected to continue to gain new share in the rear-camera and MR field, we maintained a 19% increase in the industry rating target price to HK$23.0, corresponding 23.9 times the price-earnings ratio of 2024 and 13.6 times the price-earnings ratio of 2025, with 30.8% upside compared to the current stock price.
risks
The customer structure is a single risk, and the upgrade of automotive optical products falls short of expectations.