On the evening of April 17, the company released its 2023 annual report. During the reporting period, the company achieved revenue of 499 million yuan, a year-on-year increase of 31.03%, realized net profit to mother of 17.4835 million yuan, a year-on-year decrease of 41.50%, and achieved net profit of 6.9529 million yuan after deduction, a year-on-year decrease of 47.47%. At the same time, it is proposed to distribute a cash dividend of 1 yuan for every 10 shares.
In this regard, our comments are as follows:
Key points of investment
The revenue growth rate was quite obvious. The decline in gross profit margin dragged down the company's revenue of 499 million yuan, an increase of 31.03% over the previous year, mainly due to the contribution of newly launched virtual reality products, which achieved net profit of 17.4835 million yuan, a year-on-year decrease of 41.50%. The increase in revenue and the decline in net profit due to the increase in revenue was mainly due to: 1) a significant decline in gross margin. Newly expanded virtual reality products with a low gross profit margin (17.75%) are in the introduction period, driving the company's comprehensive gross margin down 8.1pct to 43.52%; 2) Expenses increased during the period. Due to the forward-looking layout of new products, new tracks, and new business expenses, there have been many increases, including design service fees, streaming fees, and packaging fees for self-developed chips, continuous expansion of R&D expenses for new products, sales expenses for new product introduction and marketing, and equity payment fees for confirming equity incentives. The company's sales/management/R&D/financial expenses were 0.73/0.45/0.81 billion yuan respectively, up 19.97%/12.50%/12.48%/6.72% year-on-year respectively. The company's period expenses were 214 million yuan, an increase of 27 million yuan over the previous year. The company's net cash flow from operating activities was 120 million yuan, an increase of 198.22% over the previous year. Good cash flow control ensures the stable operation of the company.
Three self-developed chips were released, boosting performance while consolidating market position. At the new product launch conference on April 17-18, 2024, the company launched the three chips Hanshuo, Zeus, and Thor at once. 1) Cold flash: As the world's first LED “ALLIN ONE” integrated chip, only one chip can complete the traditional constant current driver IC, line driver IC, and receiver card logic control functions. “One” chip solves “multiple” problems, and uses an integrated architecture to plug and play, making it more energy efficient. This chip is a disruptive and innovative chip solution for the LED display control industry, leaving behind traditional solutions using sender/receiver cards, network cables, and high power consumption. The total revenue of the two domestic peers in the display control industry exceeds 1 billion yuan (2022 financial report). If the chip can be successfully promoted, compared to the company's 2023 revenue of 499 million yuan, it is expected to bring greater performance flexibility to the company; 2) Zeus: As the first autonomous and controllable ASIC professional audio and video processing chip in China, it is committed to breaking through the “stuck neck” problem of overseas chips and effectively improving the competitive advantage of domestic audio and video control products. The chip is mainly for personal use. On the one hand, it can effectively reduce the company's procurement costs (21-22) (Chip procurement costs are 0.91 billion yuan, respectively). On the other hand, it better meets the requirements of Party, government, and military users for autonomous and controllable localization and further enhances the market competitiveness of the company's products; 3) Thor: It is a human-computer interactive display chip that can be used in industrial control, beauty equipment, medical devices, charging piles, smart homes, etc. The successive introduction of the above three chips will enhance the company's performance and at the same time strengthen the company's market position in the display control industry.
Direct Product Supply N Company achieved a breakthrough of 0 to 1 and is expected to become the second growth curve
While consolidating the company's traditional main business, the company is also actively laying out new tracks and products, and has made breakthrough progress. The company has established a business partnership with Company N, an internationally renowned leader in graphics technology and artificial intelligence computing, obtained Company N's Vendor Code (that is, qualified supplier code), and is eligible for direct supply to Company N. The business connected between the company and Company N is mainly a testing and testing platform for various products, and is continuously expanding new businesses. Currently connected products include liquid cooling test platforms, AI-based testing platforms, various test boards, etc. The above 3 series of products are in the sample test introduction and small-batch delivery stage, respectively. Direct supply of the company's products to Company N achieved a breakthrough of 0 to 1, which is expected to become the second growth curve.
Profit forecasting
We are optimistic about the future development prospects of the company's self-developed chips and new business. Based on the latest business developments, we raised the company's profit forecast and predicted that the company's net profit for 2024-2026 will be 1.42, 2.74, and 395 million yuan respectively, and EPS will be 0.70, 1.35, and 1.95 yuan respectively. The current stock price corresponds to PE at 44, 23, and 16 times, respectively, maintaining the company's “buy” investment rating.
Risk warning
The risk of macroeconomic fluctuations, the risk that the development and promotion of self-developed chips falls short of expectations, the risk that industry competition will increase, the risk that downstream demand falls short of expectations, the risk of product development and promotion of direct supply N companies falling short of expectations, the risk of raw material price fluctuations, etc.