2H23's performance recovery was better than expected. The 2024 results may continue to improve. Ruisheng Technology announced the 2023 financial report: achieved revenue of 20.4 billion yuan (yoy: -1%, mainly dragged down by the acoustic business), gross profit margin of 16.9% (yoy: -1.4pp), and net profit of 740 million yuan (yoy: -9.9%).
Higher than our expectations of 480 million yuan; 2H23 achieved revenue of 11.2 billion yuan (roughly the same as year on year), gross profit margin of 19.2% (yoy: +1.4pp, hoh: +5.1pp, benefiting from the recovery in demand for mid-to-high-end models and the peak consumer electronics season), and net profit of 590 million yuan (yoy: +25.2%). We raised our 2024/2025 net profit forecast by 60%/77% to 15.4/2.02 billion yuan (excluding automotive acoustics company PSS) to reflect the recovery in Android customer demand and the upgrading of the company's acoustic/optical product shipping structure; at the same time, we also forecast net profit of 2.36 billion yuan (excluding car acoustics company PSS) in 2026.
Maintaining the “buy” rating, the new target price is HK$33.2 (previous value: HK$17.5), based on 24.0x2024E PE (vs Wind is comparable to the company's average value of 18.8 x 2024E PE, taking into account the further increase in the company's share of the Android market).
Optical business: 2024 optical gross margin may be further improved. 2H24 may be expected to reverse the loss of 2H23. The optical business achieved revenue of 1.86 billion yuan (yoy: +36.0%), mainly benefiting from improved product portfolio and slowing competition; gross profit margin -9.2% (yoy: +20.5pp, hoh: +7.8pp), mainly benefiting from the upgrading of plastic lenses and optical modules and the company's share in high-end models. Looking ahead, with the return of high-end smartphones from major customers and the launch of more new models, we expect Ruisheng Optics' product structure and operating rate to improve further in 2024, or drive a recovery in the gross margin of the optical business (we forecast 6.0% gross margin for this business in 2024) and reverse losses in 2H24. We recommend that investors continue to monitor the progress of Ruisheng Optics's business gross margin improvement in 2024.
Acoustics business: The gross margin of mobile phone acoustics may continue to improve in 2024. Vehicle acoustics entered a period of rapid development. 2H23 acoustics business achieved revenue of 4.18 billion yuan (yoy: -11.5%); gross profit margin of 30.7% (yoy: +1.8pp, hoh: +5.2pp), mainly benefiting from the recovery in acoustic specifications. Looking ahead to 2024:1) Mobile phone acoustics: As high-end master acoustics products and cost-effective Combo products are introduced to more end customers, we believe that the company's acoustic shipping structure is expected to be further improved, and the gross margin of acoustic products may be further increased; 2) Vehicle acoustics: As the company completes the first phase of the acquisition of Premium Sound Solutions (PSS) in February, the two sides will increase business collaboration. We also expect the company's automotive acoustics business to enter a rapid development channel and may become the second growth in the acoustics business in the future engine.
Maintaining the “Buy” rating; increasing the target price to HK$33.2
We forecast net profit for 2024/2025/2026 to be $15.4/20.2/2.36 billion, respectively. We raised our target price by 90% to HK$33.2 based on a 24x 2024 PE forecast. The company's current valuation (17.1 times the 2024 PE forecast) is attractive and reaffirms the “buy” rating.
Risk warning: Smartphone demand is weaker than expected, and new product development falls short of expectations.