4Q23 results are in line with our expectations
The company announced 4Q23 results: revenue of 1,044 billion yuan, up 12.1% month-on-month and 25.6%; gross profit margin of 40.5%, up 3.9 ppts month-on-month, up 1.9 ppts; net profit to mother of 255 million yuan, 10.5% month-on-month, up 10.9% year-on-year; net profit after deduction of 256 million yuan, up 16.9% month-on-month and 18.0% year-on-year. The overall results were in line with our expectations.
Development trends
The new energy business became the main component of the company's revenue, and gross margin improved significantly in Q4. Looking at the full year of 2023, against the backdrop of weak customer demand in the industrial control field, the company continued to develop the new energy business by optimizing the product structure. In 2023, the company's new energy business revenue was 2.16 billion yuan, accounting for a historical high of 59%. In terms of new energy vehicles, the automotive-grade IGBT modules produced by the company in 2023 for use in main motor controllers are growing strongly, supporting more than 2 million sets of NEV main motor controllers, further increasing the NEV semiconductor device market share. In 2023, due to the release of production capacity and the high inventory level of downstream customers, terminal demand for MOS products and some low-current single-tube IGBT products was clearly adjusted, putting some downward pressure on prices. As an industry leader, the company took advantage of large-scale cost reduction and adjusted the product structure in a timely manner to increase the proportion of high-voltage and high-current IGBT shipments. Combined with upstream OEM price reduction, the gross margin continued to perform well. At the same time, we have also seen a remarkable growth trend in the company's overseas business. The subsidiary Star Europe achieved operating revenue of 310 million yuan, an increase of 227% over the previous year. We believe that high-end products and overseas markets are expected to provide strong support for the company's revenue growth.
There has been a breakthrough in the SiC business, and construction of the new production line is progressing smoothly. According to the company's 2023 annual report, the company's automotive-grade SiC MOSFET modules have achieved mass loading applications. The production line is running smoothly, and fixed assets/projects under construction have increased 88%/19% month-on-month compared to 23H1. Currently, some of the company's products are already in the verification stage, and we believe that the company's SiC production capacity is expected to be gradually released in the next 1-2 years. Along with the promotion of localization and the reduction of SiC substrate costs, we believe that SiC modules will gradually penetrate into models below 200,000 yuan in the future. As a leading manufacturer in the SiC field, Star is expected to fully benefit from SiC's replacement trend for IGBT modules, and the company's multiple 800V main electronic control projects are expected to continue to contribute considerable revenue from 2024-2030.
Profit forecasting and valuation
Due to the company's SiC targeting and increased customer demand, we raised the company's 2024 revenue by 2% to 4.82 billion yuan, but due to increased competition in the IGBT industry, we lowered the company's net profit to mother by 12% to 1.01 billion yuan in 2024. The 2025 revenue/net profit forecast of 60.7/1.16 billion was introduced for the first time. The company's outperforming industry rating was maintained, but the target price was lowered by 12% to RMB 207.00, based on 35x2024 P/E, with 40% upside.
risks
The rapid release of production capacity has led to increased competition in the industry; application markets such as new energy vehicles and optical storage have fallen short of expectations.