ArcSoft's revenue in '23 yoy +26.07%, net profit to mother yoy +53.03%, which is basically in line with the Express

The company's 2023 revenue was 670 million, yoy +26.07%; net profit to mother of 884.8877 million, yoy +53.03% (after adjustment); deducted non-net profit of 680.694 million, yoy +898.87% (after adjustment), which is basically in line with the rapid report data; net operating cash flow yoy +472.55%, due to a significant increase in fixed contract repayments in 23 years. The increase in the company's personnel costs in 2023 exceeded our expectations. The 24-25 EPS was reduced by 0.32/0.42 yuan (previous value: 0.76/1.05 yuan), and the 2026 EPS was increased by 0.57 yuan.

Given that the company's intelligent driving business has not expanded in 24 years, we used a 25-year valuation, which is 65 times PE (Wind). Given the company's leading position in visual algorithms and intelligent driving, commercial marketing, etc., the company was given a 25-year target PE 80 times, corresponding to a target price of 33.6 yuan (previous value of 47.12 yuan) to maintain the purchase rating.

24Q1: Revenue yoy +13.93%, net profit to mother yoy +21.21%, maintaining rapid growth. The company's 24Q1 revenue was 184 million, yoy +13.93%; net profit to mother was 34.1653 million, yoy +21.21%; deducted non-net profit of 30.2846 million, yoy +23.91%; operating cash flow - 16.5542 million, yoy -116.19%. 24Q1's smart terminal revenue was 161 million, yoy +8.91%; intelligent driving revenue was 205.937 million, yoy +84.37%.

Smart terminals: Superdomain integration drives ASP growth, and generative AI opens the mobile phone business growth ceiling in 2023, the company's smart terminal business revenue was 581 million, yoy +22.82%. It is mainly due to mass production, implementation and continuous shipment of night scene, HDR and other solutions launched by the company based on new superdomain integration technology, which led to the improvement of the company's smart terminal business ASP. In 2024, mass production and implementation of new algorithms based on superdomain integration, such as motion capture, portrait capture, and telephoto ultra-clear, is expected to continue to drive the improvement of the company's mobile phone business ASP. The widespread application of generative AI in mobile terminals in the future will also bring more business opportunities to the company.

Intelligent driving: In-cabin mass production accelerated, overseas acquisition of multiple global targets, and the external commercialization process accelerated in 23 years. The company's intelligent driving revenue was 74.294 million, yoy +67.26%, due to the continuous increase in mass-produced models with the company's smart cockpit algorithm. Outboard algorithm products - 3D AVM, smart tailgate, visual sentry monitoring, infrared night vision ADAS products, etc. are gradually mass-produced and delivered. The Tahoe series, an integrated in-cabin software and hardware solution, has received cooperation projects from many domestic and foreign OEMs. The commercialization process of Westlake, an integrated external software and hardware solution, has been accelerated, and a single Soc integrated mobile and parking product has been realized. In addition, the company actively lays out in the international market and has obtained targeted projects for more than 20 overseas models, of which more than 10 have already been mass-produced and shipped.

Forward-looking layout: Build an XR one-stop liberation solution, continuously improve the company's forward-looking layout of the XR field with intelligent commercial product functions and channels, and create a one-stop, comprehensive product solution from the four dimensions of calibration, perception, interaction and visual presentation. In the field of smart commercial photography, the company has launched live image, audience map, product map, and clothing map functions, and implemented AI editing functions. It is expected to achieve video generation functions this year. The company is expected to reach API-level cooperation with many mainstream e-commerce platforms to help the company develop rapidly in smart commerce.

Risk warning: sales of smart terminals and mass production of smart cars fell short of expectations; progress by AIGC and others fell short of expectations.