The company announced its 2023 annual report on March 21. In 2023, it achieved revenue of 5,076 billion yuan, +16.01% year-on-year, net profit of 600 million yuan, +4.15% year-on-year, and net profit of 523 million yuan after deducting non-return to mother net profit of 523 million yuan, +2.72% year-on-year.
Our review is as follows:
Mass production of microprisms for customer A and return for customer H helped return annual results to an upward trajectory. For the full year of 2023, the company achieved revenue of 5,076 billion yuan, +16.01% year on year; net profit to mother of 600 million yuan, +4.15% year on year; net profit after deducting non-return to mother of 523 million yuan, +2.72% year over year; and gross margin of 27.81%, +0.91 pcts year over year. By product, revenue for optical components/semiconductor optics/thin film optical panels/automotive electronics (AR+) /reflective materials was 24.46/1.08/18.49/2.91/287 million yuan, compared to +21.11%/-62.46%/+17.77%/+54.39%/+4.12%, gross profit margin 30.66%/35.32%/25.48%/11.72%/29.22%. Benefiting from the launch of Microprism by customer A and the recovery in demand for Android systems, performance rebounded markedly in the second half of the year. The complexity and value of the Apple Quad Prism is significantly higher than that of other Android models. As the main supplier of the Apple Microprism, Q2 began mass production, and the 23H2 volume contributed to the main performance increase in the second half of the year. At the same time, H customer used to be the company's core customer, supplying products such as infrared cutoff filters, microprisms, and narrowband filters. The return of H customers also contributed to the company's growth.
23Q4 revenue and net profit to mother increased month-on-month, and profitability declined month-on-month. 23Q4 achieved revenue of 1,527 billion yuan in a single quarter, +30.05% YoY/-9.96%; net profit to mother of 162 million yuan, +69.10% YoY/-37.64% YoY; net profit excluding non-return to mother of 157 million yuan, +82.46% YoY/-38.28% YoY. The fourth quarter results maintained a high year-on-year growth rate, mainly driven by customer A microprism and the recovery of Android; the month-on-month decline was mainly seasonal. The consumer electronics peak season base in the third quarter was high, while year-end remuneration incentives and related expense calculations had an impact.
Looking ahead to 2024, promising popularity, the return of H customers, and an increase in the share of high-end Android products will boost consumer electronics business performance, and the AR business has long-term room. 1) Periscope is expected to sink to the Pro model in the iPhone 16 series, and the Android camp is also expected to accelerate, and the market space for crystal photoelectric microprisms will further increase; 2) the penetration rate of high-end products such as absorptive reflection composite filters continues to increase, and the unit price and gross margin are significantly higher than traditional products; 3) There is also room for improvement in customer A's thin film optical panel business share. 4) The AR business has broad room for growth. On the one hand, the company's automotive AR-HUD business has successfully launched in models such as Deep Blue and Red Flag. On the other hand, the company is forwardly deploying various AR display technologies, deepening the accumulation of AR optical technology by investing in Lumus and SCHOTT in Germany and cooperating with Digilens. Large AI models are expected to promote the popularity of AR glasses, and the company will benefit from the AR wave in the long term.
Maintain an “overweight” investment rating. We are optimistic about the growth potential brought about by customer A's periscope microprism and the return of H customer. We recommend continuing to pay attention to the company's major consumer electronics customer business progress, the penetration of high-end Android products, and the progress of AR business development. Revenue forecast for 24-26 will be 63.61/77.60/9.389 billion yuan, net profit attributable to mother will be 806/9.60/1,151 million yuan, corresponding EPS 0.58/0.69/0.83 yuan, corresponding PE 26.8/22.5/18.8 times, maintaining the “gain” rating.
Risk warning: Downstream demand falls short of expectations, industry competition increases risk, technology iteration risk, macroeconomic and policy risk.