Key points of investment
On March 28, 2024, the company released the “2023 Annual Report”.
23Q4 profit increased sharply month-on-month. Sales revenue in 2024 is expected to increase by mid-digit year-on-year due to weak demand in the terminal market, high industry inventories, and intense competition in the industry. At the same time, the company is experiencing high depreciation during a high investment period, and the company's performance in 2023 is under pressure. Annual revenue was 45.250 billion yuan, a year-on-year decrease of 8.61%; net profit to mother was 4.823 billion yuan, a year-on-year decrease of 60.25%; net profit after deducting non-return to mother was 3.270 billion yuan, a year-on-year decrease of 66.52%; gross profit margin was 21.89%, a decrease of 16.41 percentage points; and the average annual capacity utilization rate fell 17 percentage points year on year to 75%. By the end of 2023, the company's 8-inch monthly production capacity reached 806,000 tablets, an increase of 920,000 tablets compared to the end of 2022.
Looking at a single quarter, due to the release of new products such as mobile phones and PCs and expectations of macroeconomic recovery, the industry gradually recovered, and 23Q4 companies' profits increased sharply from month to month. 23Q4 achieved revenue of 12.152 billion yuan, up 3.40% year on year and 3.16% month on month; net profit to mother of 1,148 billion yuan, a decrease of 58.16% year on year and an increase of 69.45% month on month; net profit without return to mother was 998 million yuan, a decrease of 44.38% year on year and an increase of 59.19% month on month.
Looking ahead to 2024, the company expects 24Q1 sales revenue to increase 0% to 2% month-on-month, gross profit margin 9% to 11%; full-year sales revenue will increase by a single digit year over year. The company will continue to advance plans to build a 12-inch plant and production capacity, and capital expenditure is expected to remain flat year over year (about US$7.47 billion in capital expenditure in 2023). Continued high investment will cause gross margin to be under some depreciation pressure; according to the company's February 2024 investor survey minutes, the company said that depreciation in 2024 will increase by about 30% compared to 2023, and depreciation will gradually increase in each quarter.
Computer and tablet revenue bucked the trend throughout the year. 23Q4 CIS and driver chips performed well by application areas. In the integrated circuit foundry business, computers and tablets were the only application areas where the company's revenue increased in 2023, and 23Q4 smartphone and computer and tablet revenue grew year on month.
1) Smartphones: Smartphone revenue in 2023 was 10.914 billion yuan, a year-on-year decrease of 10.76%, and the share of revenue fell 0.3 percentage points year-on-year to 26.7%. 23Q4 smartphone revenue was $471 million, up 11.47% year over year and 23.14% month over month. The increase in revenue in 23Q4 was mainly due to impressive performance of image sensors and display drivers; CIS and ISP revenue increased by more than 60% month-on-month, and production capacity was in short supply; DDIC and TDDI revenue increased by more than 30% month-on-month.
2) Computers and tablets: In 2023, computer and tablet revenue was 10.914 billion yuan, up 37.69% year on year, and the revenue share increased 9.2 percentage points year on year to 26.7%. 23Q4 computer and tablet revenue was US$477 million, up 62.32% year on year and 10.67% month on month, mainly due to rapid orders for new products such as WiFi, LCD drivers, and Super IO.
3) Consumer electronics: Consumer electronics revenue in 2023 was 10.219 billion yuan, a year-on-year decrease of 15.50%, and the share of revenue fell 1.7 percentage points year-on-year to 25.0%. Consumer electronics revenue for 23Q4 was $355 million, the same as the previous quarter.
4) Connectivity and wearables: In 2023, connected and wearable revenue was 4.946 billion yuan, a year-on-year decrease of 39.34%, and the share of revenue fell 5.9 percentage points year-on-year to 12.1%. 23Q4 connectivity and wearables revenue was US$137 million, down 38.07% year over year and 19.19% month on month.
5) Industry and automobiles: Industry and automobile revenue in 2023 was 3.883 billion yuan, a year-on-year decrease of 20.62%, and the revenue share fell 1.3 percentage points year-on-year to 9.5%; the company expects the share of revenue to remain at 9% to 10% in 2024.
Industrial and automotive revenue in 23Q4 was US$118 million, down 34.77% year on year and 13.70% month on month.
Looking at wafers of different sizes, the share of 12-inch wafers in revenue is increasing year by year. In the integrated circuit wafer manufacturing business, revenue from 12-inch wafers was 30.125 billion yuan, down 0.73% year on year, and the share of revenue rose 6.7 percentage points year on year to 73.7%; revenue from 8-inch wafers was 10.750 billion yuan, down 28.08% year on year.
Continue to build the core technology system for foundry, and continue to improve the technology platform in 2023. Projects such as the 28nm ultra-low power platform project, the 40nm embedded storage process vehicle platform project, the 4X nmNNor Flash process platform project, and the 55nm high voltage display drive automotive process platform project have completed R&D and entered small-batch trial production. Among the research projects, the 28nm ultra-low leakage platform project has completed process device development, and PDK1.0 is being produced; the 55nm high-voltage display second-generation process platform and the 65nm RF silicon-on-silicon process platform have both entered the product introduction and verification stage.
Investment advice: In view of the company's statement that the current recovery in overall market demand is not strong enough to support a strong overall rebound in semiconductor demand, and the company depreciates during a high investment period, we adjusted the company's performance forecast for 24/25.
It is estimated that from 2024 to 2026, the company's revenue will be 482.37/569.20/642.62 billion yuan, respectively (the original forecast value for 24/25 was 520.34/58.664 billion yuan), with growth rates of 6.6%/18.0%/12.9%, respectively; net profit to mother will be 39.01/49.24/5.961 billion yuan (the original forecast value for 24/25 was 87.58/10.934 billion yuan), respectively, with growth rates of -19.1%/26.2%/21.1% respectively; corresponding to PB 2.4/2.3/2.2 times. As a leading foundry manufacturer in mainland China, the company is leading the domestic manufacturing process, and production capacity expansion is carried out in an orderly manner. As the terminal market gradually recovers, performance is expected to continue to grow. Continued recommendation, maintaining a “buy” rating.
Risk warning: the risk that demand in the downstream terminal market falls short of expectations, the risk that new technology, new processes, and new products will not be industrialized as scheduled, the risk that market competition will intensify, the risk that production capacity expansion will fall short of expectations, systemic risks, etc.