2023 results surpassed our expectations
Ruisheng Technology announced its 2023 results: Revenue fell 1% year on year to 20.42 billion yuan, which was higher than our previous forecast of 3%, mainly due to the increase in structural parts revenue and the collection of optical products; net profit to mother fell 10% year on year to 740 million yuan, higher than our expectations of 28% and higher than the market's consensus forecast of 19%. Looking back at 2023, we believe that the company's profitability performance exceeded market expectations: 1) The acoustic business gradually stabilized: the unit price of the company's acoustic products rebounded about 10% month-on-month in the second half of the year; at the same time, 2H23's acoustic gross margin reached 30.7%, up 5.2 percentage points from month to month; 2) The optical business continued to progress in inventory removal: the company's overall inventory turnover dropped from 109 days in 2022 to 80 days in 2023, while the gross margin of 2H23 reached -9.1% in the first half of the year, compared to -17.0 in the first half of the year Compared with%, the year-on-year narrowing was 7.9 percentage points, which positively helped the company's overall profit recovery. In the medium to long term, we are optimistic that Ruisheng Technology will consolidate its market position in the field of acoustics, and at the same time generate new revenue growth in the structural components and optics segments, and become a high-quality consumer electronics interaction solution supplier.
Development trends
Revenue from structural components has blossomed a lot, and we are watching the progress of major customer introductions. Looking back at 2023, according to the company's public results meeting, Ruisheng Technology's revenue related to structural parts increased by more than 30% year on year. Among them, metal frame revenue increased by 34.3% year-on-year, annual shaft shipments were close to 700,000 units/cooling revenue increased 100% year over year. We believe that based on the company's deep lean manufacturing experience in the field of consumer electronics precision processing and the good layout of major customers in Shenzhen and North America, the company introduced many new categories of consumer electronics components in 2023. Looking ahead to 2024, we are optimistic that the company will further cooperate with major customers to promote new models, and the structural parts business is expected to continue its steady growth momentum.
Optical business: Profitability is gradually being restored, waiting for the inflection point of the mobile phone industry chain. The gross margin of 2H23 optical products reached -9.1%, down 7.9 percentage points year-on-year from -17.0% in the first half of the year. Considering the company's relatively unaggressive pricing strategy, we expect the profitability of optics to recover moderately in 2024. Investors are advised to pay close attention to the progress of inventory removal in the optical division.
Profit forecasting and valuation
Ruisheng Technology is currently trading at 20.7 times the 2024 price-earnings ratio and 16.8 times the 2025 price-earnings ratio. Considering the relative slowdown in the competitive landscape in the optical industry, we raised the company's 2024 net profit forecast by 22% to 1.17 billion yuan, and introduced the 2025 net profit forecast to 1.38 billion yuan. We maintain an outperforming industry rating. Based on the positive recovery trend of the company's optical and acoustic business, we raised our target price by 49% to HK$27.2, corresponding 22.8 times 2024 and 19.3 times the 2025 price-earnings ratio, with 19.8% upside compared to the current stock price.
risks
Economic downturn risks, traditional business with a single major customer risk, and optical business development falling short of expectations.