2023 results were slightly below our and market expectations
Qiutai Technology announced 2023 results: revenue fell 9% year on year to 12.53 billion yuan, and net profit to mother fell 52% year on year to 82 million yuan, slightly lower than the profit warning range previously announced by the company and lower than our previous forecast of 127 million yuan. The company's 2023 performance is under pressure, and we think the main reasons are: 1) demand in the 2023 global mobile phone market is still weak, putting pressure on the gross margin of mobile phone module products; 2) fluctuations in the exchange rate of RMB against the US dollar. Looking ahead to 2024, the company is leading the sales volume of camera modules in the mobile phone sector to increase by no less than 5% year on year. We are optimistic that the company's profit in 2024 will gradually recover along with demand in the mobile phone market, and with the gradual deepening of cooperation between the company and major customers in Shenzhen. We recommend investors wait for the inflection point of the company's operations.
Development trends
The unit price of the product gradually stabilized in 2023, and I am optimistic that the profit recovery trend will continue in 2024. Looking back at 2023, although the company's mobile phone camera module shipments fell 12.3% year on year due to demand for mobile phone terminals, 2H23 shipments picked up, and the year-on-year decline narrowed to 2%; in terms of product structure, thanks to active structural adjustments, Qiutai's 32MP and above camera module shipments reached 147 million in 2023, an increase of 22% year on year, driving up 0.2 percentage points to 4.4% year on year.
Considering Qiutai Technology as one of the leading companies in the mobile phone module industry, we believe that 2H23 shipments and the gentle restoration of the high-specification product structure reflect the boom in the mobile phone optical industry or that it has bottomed out. Looking ahead to 2024, in the public performance meeting, the company indicated a year-on-year increase in camera module sales of no less than 5% in the mobile phone sector, with 32MP and above shipments accounting for more than 45%. We believe that the guidelines reflect that industry demand is expected to experience a moderate recovery in 2024. At the same time, along with the gradual introduction of new products from the company's major customers in Shenzhen, we are optimistic that the company's profit recovery rate will be superior to the industry. We expect the company's gross margin of mobile phone camera modules to increase 0.8 percentage points to 5.2% year on year in 2024.
The automotive and IOT module business continues to grow, and a second growth curve can be expected. The company's shipments of camera modules used in non-smart phones (including smart cars and IOT) increased 15.4% year-on-year in 2023, with sales of camera modules used in smart cars increasing 3.6 times year-on-year. We are optimistic that the company will continue to expand its customers in the automotive field and gain a larger market share with leading packaging processes such as COB and advanced manufacturing technology for automatic mass production.
Profit forecasting and valuation
The current company's stock price corresponds to 17.3 times 2024 and 11.5 times the 2025 price-earnings ratio. Considering that the profitability of the module industry will still take some time to recover, we lowered the company's profit forecast for 2024 by 39% to 183 million yuan, while we introduced the company's profit forecast for 2025 to 263 million yuan. We maintain our industry rating and target price of HK$4.0, corresponding to 23.0 times the 2024 price-earnings ratio and 15.3 times the 2025 price-earnings ratio, with 32.9% upside compared to the current stock price.
risks
Global mobile phone terminals continue to be weak; the company's in-vehicle customer expansion falls short of expectations.