2023 results fall short of our expectations
The company announced its 2023 results: the company's annual revenue was 69.031 billion yuan, +29.1% year-on-year; net profit to mother was 1,069 billion yuan, +29.3% year-on-year. Corresponding to 2H23, revenue was 36.731 billion yuan, +25.8% year over year; net profit to mother was 767 million yuan, +57.2% year over year. The company's performance was higher than our expectations, mainly due to a marked increase in the profit margin of 2H23's new energy business.
Development trends
Revenue growth was strong, and 2H23 profitability recovered. 1H23/2H23's revenue was +33%/+26% year-on-year, mainly driven by revenue growth in the photovoltaic and white power business. The gross profit margin for the whole year was 14.0% (-1.4ppt year on year), of which 2H23 gross profit margin was 14.8% (same year over year): 1) The color TV market competed with panel prices rising year on year, putting pressure on profits; 2) However, benefiting from the decline in component prices, the profit of the new energy business increased markedly. Sales/management/R&D expense ratios were -1.0/-0.3/-0.9ppt, respectively, and cost control was good. Other income and loss (mainly investment in financial assets) was -64 million yuan (44 million yuan in '22). Overall, the net interest rate for the whole year was 1.5% (same year on year), with 2H23 net interest rate of 2.1% (+0.4ppt year on year), and profitability recovered significantly in the second half of the year.
Looking at the full year of 2023 by business: 1) Smart home appliance revenue (TV and white electronics business) was 30.592 billion yuan (+11% YoY). Its domestic TV/overseas TV/white electronics business revenue reached +12%/-3%/+61% YoY respectively, reaching 11.059 billion yuan/7.949 billion yuan/7.088 billion yuan, with gross margins of -3.2/-0.6/-0.6ppt, respectively.
The gross margin of the domestic TV business declined markedly due to rising panel prices and changes in the competitive landscape. The white power business fully benefited from the domestic air conditioning boom and the resilience of the white electric export business. 2) The subsidiary Skyworth Digital had revenue of 10.627 billion yuan (-12% YoY) and net profit of 602 million yuan (-27% YoY). Demand for set-top boxes was weak, and automotive electronics grew rapidly. 3) Revenue from the new energy business was 23.340 billion yuan (+96% year over year), accounting for 34% of the revenue from the new energy business, and 230,000 new grid-connected household photovoltaic power plants were added. The gross margin of the new energy business was 8.2% (+0.8ppt), of which 2H23 gross profit margin was 9.1% (+1.6ppt year over year), benefiting from a sharp decline in upstream component prices, driving the Group's overall profit recovery.
4) Revenue from the modern service industry and other businesses (mainly including home appliance maintenance, logistics, property sales and leasing) was 4.708 billion yuan.
Profit forecasting and valuation
We are optimistic about the company's development in the black power, digital terminal and photovoltaic business, and the profitability of the new energy business brought about by low module prices. We raised our net profit in 2024/2025 by 48%/52% to 1,244 billion yuan/1,397 billion yuan. The current stock price corresponds to the 2024/2025 price-earnings ratio of 4.9x/4.1x. We believe that the long-term development of the company will remain stable, outperforming the industry rating and target price, corresponding to a price-earnings ratio of 7.9 times/6.6 times in 2024/2025, with 60% room to rise compared to the current stock price.
risks
Industry competition heightens risks; the company's PV business expansion falls short of expectations; panel prices rise.