1Q24: Revenue/profit exceeded expectations. After entering a period of rapid growth, 1Q24 achieved revenue of 387 million yuan (yoy: +21.71%, qoq: -4.66%), net profit to mother of 53.92 million yuan (yoy: +73.43%, qoq: +9.95%), net profit of 47.91 million yuan (yoy: +88.56%, qoq: +17.69%), and both revenue and net profit to mother exceeded our previous expectations of 3.5/0.37 million yuan. The steady year-on-year increase in revenue was mainly due to the company's continuous expansion of new application scenarios, and demand in some markets began to recover. The second new cost-effective product line ESP32-C3/C2 and the high-performance product line ESP32-S3 grew rapidly. Affected by the product structure, 1Q24's comprehensive gross margin increased to 41.93% year on year, and overall cost control was good. The company's 1Q24 profit growth rate was faster than the revenue side. We maintained our net profit forecast of 1.83/2.91/387 million yuan for 24/25/26. Considering the company's integrated hardware+cloud platform layout capabilities, we gave 56 times 24PE (Wind is comparable to the company's consistent expectation of 55 x 24PE) and a target price of 127.1 yuan, maintaining the “gain” rating.
1Q24 review: Domestic market demand picked up, gross margin increased month-on-month. 1Q24's chip and module products accounted for 42.7%/56.7% of the company's revenue, respectively (1Q23:
(34.2%/64.6%), chip product revenue increased 51.96% year over year to 165 million yuan, mainly due to the recovery in domestic market demand and increased demand for miniaturization of terminal products from some customers. In terms of gross margin, the company's chip/module gross margin was 47.10%/38.06% (yoy: -1.3 pct/+1.3 pct), respectively. The decline in chip gross margin was mainly affected by the exchange rate, and the company's target comprehensive gross margin remained around 40%. In terms of costs, 1Q24 spent 104 million yuan on R&D (yoy: +21.48%, qoq: -11.90%), and the number of R&D personnel was 490 (484 at the end of 23). Since the company's new products are mainly based on the RISC-V open source instruction set, the growth rate of 1Q24's sales expenses is lower than the revenue growth rate. The company operates steadily, with a net profit margin of 13.92% in 1Q24, and continuous improvement in profitability.
2024 outlook: Revenue continues to grow rapidly, and new products are starting to be launched one after another. We expect the 1Q24 growth trend to continue: 1) New products such as ESP32-C3 and ESP32-S3 will maintain rapid growth; 2) The company's new products such as C6/H2/P4 are expected to be launched one after another this year:
The C6 product line supports the 2.4G single-band Wi-Fi 6 protocol. Compared with the original Wi-Fi 4 products, it has better performance in terms of power consumption, stability, and network capacity, and has now been used one after another; the P4 product line is equipped with AI extension instructions and an integrated H264 encoder, which can better support HMI and other applications; H2 products have added support for IEEE 802.15.4 technology and entered the Thread/Zigbee market. In addition, the company's community ecosystem is progressing smoothly, and the number of projects is growing steadily on major platforms such as GitHub and Gitee. The rich developer ecosystem helps accelerate the launch of the company's new products and continuously explore new application scenarios.
Investment suggestion: The target price is 127.1 yuan, maintaining the “increase in holdings” rating companies in recent years. The net profit for 24/25/26 is estimated to be 1.83/2.91/387 million yuan, respectively. Based on the company's hardware+cloud platform integration capabilities, 56 times 24PE (comparable to the company's consistent expectation of 55 x 24PE), the target price is 127.1 yuan, a “gain” rating.
Risk warning: Downstream demand is weak, market competition intensifies, and new product promotion falls short of expectations.