1Q24 results are in line with our expectations
The company announced 1Q24 results: revenue of 1,259 million yuan, +22.9%/-7.7% YoY; net profit to mother of 170 million yuan, +111.3%/+4.3% YoY; net profit without return to mother of $158 million, +156.7%/+8.5% YoY. The results were in line with our expectations.
Strong demand continued in the first quarter, and gross margin remained flat month-on-month. 1Q24's gross margin was 36.95%, +4.8ppt year over year. The main reasons were 1) terminal recovery led to significant year-on-year increases in capacity utilization and labor efficiency, and 2) high-margin signal processing products grew faster than overall. Gross margin remained flat month-on-month, mainly because the company continued the trend of strong orders since 2Q23 during the traditional off-season, and capacity utilization remained at a high level.
The cost rate is stable, and profitability is gradually increasing. 1Q24's sales/management/R&D expenses were +23.5%/+27.8%/+19.9%, respectively. The rapid growth was mainly due to the expansion of business scale, depreciation of the new office plant expansion, and the company's continuous investment in research on underlying basic technologies such as materials, processes, and equipment. Sales/management/R&D expenses were 2.0%/5.5%/8.5% respectively, which was the same overall year on year. Good cost and cost control capabilities led 1Q24 net income margin to +5.7pp/+1.6ppt to 13.5% YoY.
Development trends
We are optimistic about the company's traditional mobile phone business. According to IDC, 1Q24 global smartphone shipments were +7.8% year-on-year, and Android shipments were +12% year-on-year. The growth rate of Chinese brands was higher than that of Android as a whole. Judging from the company's customer structure, we believe that the high structural growth rate of terminal demand is expected to provide strong support for the company's mobile phone revenue. At the same time, we see a continuous drive of the overall machine upgrade in terms of component usage and the use of high-quality components. In addition, the company's LTCC products and integrated inductors were better released in '23, and we expect to continue to expand our customers and continue to grow at a high rate in '24.
Optimistic about the vast space brought by emerging businesses. 1) Automotive electronics: We believe that customers are expected to achieve rapid growth in 24/25 as the company's own batch delivery capacity is further enhanced, new products and projects continue to be launched, and the depth and breadth of cooperation between the company and customers is deepened due to considerations of cost reduction and supply chain stability. 2) Photovoltaic energy storage: The company has been recognized by domestic and foreign industry benchmark companies in the field of microinverters. We expect the product release speed to be second only to automobiles; 3) Data centers: The company can supply power inductors for server power management. We believe that as demand for computing power continues to rise, related products are expected to bring new volume.
Profit forecasting and valuation
Since there was still a lot of investment on the expense side in the first quarter, we lowered our 24/25 net profit by 5%/8% to 886/1.11 billion yuan. The current share price corresponds to 24/25 P/E 23.7x/19.0x. Maintaining an outperforming industry rating and considering a slight downward shift in the valuation center, we lowered our target price by 9.6% to 31.32 yuan, corresponding to the 24/25 P/E 28.5x/22.8x, which is a 20% increase from the current stock price.
risks
Demand for consumer electronics terminals fell short of expectations; introduction of new products fell short of expectations; new market expansion fell short of expectations.