Tongfu Microelectronics released its 2023 annual report, and Q4 net profit increased 823/ 88% month-on-month
Tongfu Microelectronics released its 2023 annual report. Annual revenue bucked the trend and increased by 3.9% year-on-year to 22.269 billion yuan. Mainly due to the recovery in downstream demand in the second half of 2023 and the company's active adjustment of production capacity layout, acceptance of computing power chip orders, and large-scale mass production, the company's capacity utilization rate increased. Furthermore, cost control is good, which led to a relatively good increase in the company's Q4 profit. Net profit for Q4 was 233 million yuan, up 823.2% year on year and 87.9% month on month. Driven by the recovery of the semiconductor cycle and the growth of the company's major customer AMD, we expect the company's net profit to be 9.55/ 11.61/1,643 billion yuan in 2024/2025/2026. Based on the company's domestic leadership in the field of advanced packaging and its pioneering layout in the fields of storage, display drivers, automotive electronics, etc., based on a 24-year BPS of 9.81 yuan, the target price was raised to 25.51 yuan to maintain the “buy” rating.
Q4 review: Gross margin showed a quarterly upward trend. Expense optimization drove continuous performance improvement. Q4 gross profit margin was 12.6%, which was basically flat from month to month, affected by the accrual of employees' year-end bonuses and increased depreciation.
However, the past few quarters have shown an overall upward trend, mainly due to: 1) the recovery in downstream consumer electronics demand driving the overall operating rate to rise quarter by quarter; 2) domestic sealing prices gradually stabilized; 3) the share of overseas business increased, orders from major customers such as AMD and MediaTek continued to rise, and the revenue improvement of factories in Suzhou and Penang was particularly prominent. The gross margin of overseas business reached 12.2% in 2023 (vs. 9.5% of domestic business). At the same time, the company actively optimized expenses, resulting in a year-on-month increase in Q4 net profit. The company's investment in advanced packaging, management and R&D cost rates are well controlled. Due to the slight depreciation of the US dollar exchange rate in Q4 as a whole, the pressure on financial expenses caused by the company's exchange losses decreased. Q4 Financial expenses were 57 million yuan, a significant decrease from month to month.
Outlook: Driven by AMD's business, revenue is expected to increase 13.5% year over year, and net profit is expected to increase year-on-year. As AMD continues to advance in data center AI accelerator chips, AI PCs, etc., it will drive the revenue growth of Tongfu's Suzhou and Penang plants to accelerate in 2024. We expect a 13.0%/15.0% year-on-year increase, respectively, and the total revenue share will increase to 70.1%. As a result, it is expected to drive the company's revenue to increase 13.5% year-on-year in 2024. Due to the increase in the share of overseas business, the combined extension of the depreciation policy of the Suzhou and Penang plants will reduce 24-year depreciation by $537 million. We expect the company's gross margin to increase by 2.4 pct to 14.1% year-on-year in 2024. Along with the company's continuous management improvements and cost optimization, we expect the company's net profit to be increased 464% year-on-year to 955 million yuan in 2024.
Maintain the “buy” rating and raise the target price to $25.51
Driven by the upward semiconductor cycle and long-term demand for AI/HPC, we expect the company's net profit to be 9.55/ 11.61/1,643 million yuan in 2024/2025/2026, corresponding EPS of 0.63/0.77/1.08 yuan. A 24-year PB valuation of 2.6 times was given, and the target price was raised to 25.51 yuan (previous value: 21.77 yuan), maintaining the “buy” rating.
Risk warning: The risk of a downturn in the semiconductor cycle; performance falls short of expectations due to weakening core customer demand.