2023 results are in line with market expectations

The company announced its 2023 results: revenue of 2.115 billion yuan, up 5.2% year on year, net profit of 135 million yuan, year on year decrease of 54.6%, in line with market expectations. Among them, 4Q23 revenue was 680 million yuan, up 48% year on year, up 13.0% month on month, and net profit to mother was 58 million yuan, up 168.5% year on year and 9.6% month on month. The main reason for the decline in the company's profitability in 23 was the increase in upstream wafer costs, compounded by intense market competition. The company previously announced 1Q24 performance forecast:

Revenue was 540 million yuan to 550 million yuan, up 64% to 67% year on year, and net profit to mother was 60 million yuan to 0.7 billion yuan, turning a loss into a profit year over year. We believe that as downstream customer inventory continues to be removed and the company's own product sales structure is continuously optimized, the company's profitability is expected to be further restored.

Development trends

Demand for AI computing power is growing, and the company is showing its core competitiveness. In 2023, the company further specialized in the operation of multiple AIoT product lines. It not only achieved breakthroughs in key product lines represented by automotive electronics and machine vision, but also worked for many years in the fields of education, office, etc., continuously expanding its market share and exploring new AI empowerment opportunities. In the education market, the company's products target various new hardware connected to AI models, including AI learning machines, dictionary pens, etc., to effectively enhance the AI performance and user experience of customer products. With the rapid development and implementation of artificial intelligence in the cloud, edge, and end in the next 2-3 years, we are optimistic about AI SoC Enter the fast track of growth. The company announced that it is developing an AI computing power coprocessor and plans to combine it with the main control in the future to meet the demand for improving computing power.

Focus on R&D investment and continuous iteration of new products. The company continues to maintain a high proportion of R&D investment, with annual R&D expenditure of 536 million yuan, accounting for 25.11% of revenue. The company continues to improve the AIoT SoC series chip platform, complete the R&D and design of the new generation of the RK3576 AIoT processor; NPU, as the company's core self-developed IP, has been iterated for many generations in the past few years, and can continue to help deploy models on the edge side and end side; the field of automotive electronics continues to expand. Among them, in the field of smart cockpits, various electric vehicles equipped with the RK3588M have been released and mass-produced and shipped, which have been widely recognized by the market. We believe that in 2024-2025, with the end of terminal storage and new product promotion as planned, the company's high-end AI SoCs are expected to accelerate deployment.

Profit forecasting and valuation

We kept our revenue forecast unchanged and lowered our 24/25 net profit by 28.9%/11.6% to $338/548 million due to increased competition. Considering that the increase in the share of new products in 2025 is more representative of the company's product structure, the valuation switched to 2025, and the current stock price corresponds to 40.3 times the price-earnings ratio in 25 years. Considering that the company's new products enhance competitiveness, we maintain an industry rating and target price of 68 yuan, corresponding to a 25-year price-earnings ratio of 51.9 times (28.8% upward space).

risks

Demand/introduction of new products fell short of expectations, competition intensified, and trade frictions led to supply chain instability.