Matters:
The company released its 2023 annual report: In 2023, it achieved revenue of 31,681 billion yuan (YOY -4.6%), gross profit margin of 14.5% (YOY -5.4pcts), net profit of 1,099 billion yuan (YOY -54.3%), and a net profit margin of 3.5% (YOY-3.8pcts).
Commentary:
Weak demand for smartphones is putting pressure on performance, waiting for demand to recover. The company's revenue decline in 2023 was mainly due to pressure on the mobile phone business. In 2023, the mobile phone business revenue was 20.935 billion yuan (YOY -10.1%), the in-vehicle business was 5.283 billion yuan (YOY 28.6%), and the VRAR business was 1.87 billion yuan (YOY -9.3%). The smartphone business was pressured by weak downstream sales and downsizing of mobile phone cameras in 2023, but demand for mobile phones gradually picked up in the second half of '23. The company shipped 1,171 million pieces of mobile phone lenses (YOY -1.8%) and shipped 567 million mobile phone modules (YOY 9.8%). Under pressure on volume and price, mobile phone product revenue decreased 10.1% year-on-year to 20.935 billion yuan. On the profit side, the company's gross margin fell 5.4 percentage points to 14.5% year on year in '23. Among them, the gross margins of optical components and optoelectronic products fell by 5 pct and 5.2 pct, respectively. Global smart phone shipments from 2021 Q3 to 2023Q3 experienced 9 consecutive quarters of decline, with 23Q4 shipments of 326 million units (YOY +8.5%), the first year-on-year correction in 10 quarters. IDC predicts that global smart phone shipments will increase 2.8% year-on-year to 1.2 billion units in 2024. At the same time, the company's mobile phone lens shipments have increased for 10 consecutive months since May 2023/mobile phone module shipments have increased year-on-year for 9 consecutive months since June 2023. The industry is expected to usher in recovery and growth. The company is an industry leader and is expected to benefit from the consumer electronics recovery cycle.
The VR/AR business has become a new growth pole for consumer electronics. XR is expected to become the next consumer electronics growth point outside of mobile phones. IDC expects shipments of AR/VR headsets to reach 23 million units, an increase of 14% over the previous year, and is expected to accelerate within 2023-2027, with a five-year CAGR of 32.6%. The company continues to increase product and R&D in the VR/AR field, mass production of VR binocular display modules, and modules such as See Through. At the same time, the company continues to increase R&D investment in AR optical waveguides, optical machines and light engines to provide customers with, among other things A variety of products for comprehensive AR optics solutions. Affected by the end customer product cycle, the company's VR/AR business revenue for 23 years was 1.87 billion yuan (YOY -9.3%), accounting for 5.9% of revenue. As downstream new products are released, companies are expected to benefit from the rapid growth trend of VR/AR.
Vehicle optics are constantly being upgraded, and the company continues to expand as a leading product in the industry to enjoy industry development dividends. The company has the highest market share of automotive lenses in the world. In '23, automobiles were restored to normal. The company shipped 908.12 million pieces of automotive lenses (YOY +15.1%), and the market share continued to increase. The company actively grasps the trend of autonomous driving and continues to increase R&D investment to achieve R&D and mass production of various ADAS automotive lenses/modules, and actively explore application scenarios for lidar, HUD, and smart car lights. In '23, the company's automotive products achieved revenue of 5.283 billion yuan, +28.6% over the same period; the revenue share increased 4.3 percentage points to 16.7%, making it the company's second growth curve.
Investment advice: The mobile phone market is expected to enter a recovery channel, automotive optics/XR will open up a new round of growth space in the industry, and the company is expected to enjoy industry dividends as a lens leader. Affected by downstream demand, etc., we adjusted the 2024-2026 net profit forecast of the company to be 1,503/18.07/2,061 billion (2024/2025 original value of 39.44/4.755 billion yuan). Referring to comparable companies such as Lianchuang Electronics, etc., we gave the company a price-earnings ratio of 37 times in 2024, corresponding to the target price of HK$54.8, and maintained a “strong push” rating.
Risk warning: The recovery in demand for mobile phones fell short of expectations, sales of new energy vehicles fell short of expectations, and market competition intensified.