Description of the event
The company released its 2023 annual report. In 2023, the company achieved revenue of 45.250 billion yuan, -8.61% year on year; net profit to mother of 4.823 billion yuan, -60.25% year over year; net profit after deduction of 3.270 billion yuan, -66.52% year on year.
Incident reviews
Industry performance was under pressure during the cycle, and revenue in the computer and tablet sector bucked the trend. The semiconductor industry cycle declined in 2023, downstream demand was weak, and the company's wafer sales volume declined, putting pressure on performance. Annual sales of 5.867 million wafers (about 8 inches) were sold, -17.4% year over year; the average price was 6,967 yuan, +9.18% year over year.
Decreased capacity utilization and changes in product portfolio compounded increased depreciation during the investment period. The company's gross profit margin in 2023 was 21.9%, -16.4 pcts year on year. By application, smart phones/computers and tablets/consumer electronics/connectivity and wearables/industrial and automotive revenue in 2023 accounted for 26.7%/26.7%/25.0%/12.1%/9.5%, respectively.
Among them, computer and tablet revenue accounted for +9.2 pcts compared to the previous year, driven by customer express orders for new products.
Q4 Significant month-on-month improvement, with strong growth in mobile terminal applications. Benefiting from the launch of new consumer electronics products and expectations of macroeconomic recovery, the industry gradually recovered in the second half of 2023, and the company's performance improved markedly. 23Q4 achieved operating income of 12.152 billion yuan, +3.40% year over month, slightly higher than the performance guidelines; net profit to mother of 1,148 million yuan, -58.16% year on year, +69.32% month on month; net profit without return to mother was 998 million yuan, -44.38% year on year, and +59.17% month on month. Smartphones/computers and tablets/consumer electronics/connectivity and wearables/industrial and automotive revenue accounted for 30.2%/30.6%/22.8%/8.8%/7.6% respectively in the fourth quarter. Among them, image sensors and display driver chips used in mobile terminals performed well. CIS and ISP revenue increased by more than 60% month-on-month, DDIC and TDDI revenue increased 30% month-on-month, and are highly competitive at the 40/55nm node.
The guideline is that capital expenditure will be flat in 2024, and revenue will increase by mid-single digits year over year. In 2024, the company plans to continue building the announced 12-inch plant and production capacity, and the capital expenditure is expected to be roughly the same as the previous year.
As downstream inventory levels adjust and demand gradually picks up, the company's revenue growth in 2024 is expected to be no lower than the comparable industry average, achieving mid-single-digit year-on-year growth. Revenue for 24Q1 is expected to remain flat at +2% month-on-month. The gross margin is expected to be 9-11% due to changes in product prices and combinations and SMIC Beijing entering a depreciation period.
Investment advice
In the medium to long term, as a leading OEM in mainland China, the company has strong resistance to cyclical fluctuations and supply chain localization advantages. As all links in the industrial chain continue to recover, capacity utilization and revenue levels are expected to improve. EPS is expected to be 0.49/0.69/0.76 yuan respectively in 2024-2026, corresponding to the closing price of 41.18 yuan on April 16, 2024. The 2024-2026 PE was 84.4/59.7/54.4 times, respectively. For the first time, coverage was given a “buy-A” rating.
Risk warning
Downstream demand falls short of expectations: The company's wafer sales volume and average sales price fluctuate with downstream demand, which directly affects the company's revenue and profit levels. If the semiconductor industry's recovery falls short of expectations and downstream demand weakens, there is a risk that the company's performance will decline.
Increased market competition: The company's competitors are mainly mature process and advanced process foundry companies. If global foundry production capacity exceeds demand, there is a risk that market competition will increase, customer orders will fluctuate, and product prices will be pressured.
R&D and technology upgrade risk: The company insists on independent research and development and continuously upgrades existing process platform technology to maintain market competitiveness. If future investment in technology research and development is insufficient to support the need for technology upgrades, or if the progress of new technology, new process, and new product development and industrialization falls short of expectations, it may cause the company's technology to be overtaken or replaced, which in turn will adversely affect the company's competitiveness.
Geopolitics and supply chain risks: The company's business has high requirements for raw materials, spare parts, software, equipment and service support. There are few qualified suppliers in these important fields, and most of them come from overseas.
If core suppliers lack supply, delay in delivery, increase in prices, or geopolitical risks in the country where they are located, this may adversely affect the company's operations and sustainable development.