Description of the event
Recently, the company released its 2023 annual report and 2024 quarterly report. In 2023, the company achieved revenue of 1,629 billion yuan, +23.71% year over year; net profit to mother of 372 million yuan, +22.59% year over year; net profit after deduction of 340 million yuan, +25.29% year over year. 2024Q1, the company achieved revenue of 443 million yuan, +43.74% year on year; net profit to mother of 77 million yuan, +150.51% year over year; net profit after deduction of 73 million yuan, +169.05% year on year.
Incident reviews
Revenue improved quarterly in 2023, and the product structure continued to be optimized. According to SIA statistics, global semiconductor industry sales rebounded in the second half of 2023, with sales of US$146 billion in the fourth quarter of 2023, up 11.6% from the fourth quarter of 2022. Benefiting from the recovery of the industry, the company's 2023 revenue improved quarter by quarter. Revenue in a single quarter increased from 308 million yuan in 2023Q1 to 482 million yuan in 2023Q4.
The gross profit margin in 2023 was 35.72%, down 3.69pcts from 39.41% in 2022, mainly due to the 2022 H1 high base. The product structure continues to be optimized. The company's AMOLED accounts for about 20% of revenue in 2023, showing a gradual upward trend; non-display driver chip packaging and testing revenue accounts for 7.97%.
2024Q1 continues the 2023 recovery trend. Although 2024Q1 revenue and net profit to mother declined month-on-month due to seasonal factors, both achieved high year-on-year growth rates of 43.7% and 150.5%, respectively, continuing the recovery trend since 2023. The 2024Q1 gross profit margin was 33.8%, up 5.3 percentage points from 28.5% in 2023Q1. Inventory is at a reasonable level. The number of inventory turnover days in the first quarter was 124.57 days, a significant decrease from 150.80 days in 2023Q1 and 132.32 days in the 2023 annual report. With the arrival of the peak season for consumer electronics such as downstream TV in the second and third quarters, we expect the company's performance to continue to improve steadily.
Keep abreast of industry transfer trends and continue to lay out non-display businesses. In recent years, as production capacity continues to expand, panel manufacturers in mainland China have gradually occupied most of the global market share and established their position as a global panel manufacturing center. The rise of the panel industry has spurred the development of a complete industrial chain in the middle and upper reaches, showing that the driver chip industry is shifting to mainland China at an accelerated pace. The company is a leading manufacturer of display-driven packaging and testing in mainland China, and is expected to continue to benefit from the DDIC industry shift trend. The non-display business is the focus of the company's future optimization of product structure, revenue growth and strategic development. The company will continue to cultivate on the basis of existing technology, lay out back-end processes for non-display businesses, and extend the technology product line.
Investment advice
We expect the company's revenue for 2024-2026 to be 1,949 million yuan, 25.59 billion yuan, and 3.365 million yuan; net profit to mother of 471, 751, and 934 million yuan respectively; and EPS of 0.40, 0.63, and 0.79 yuan respectively. Corresponding to the company's closing price of 9.68 yuan on April 22, 2024, the company's 2024-2026 PE was 24.4, 15.3, and 12.3 times, respectively, maintaining a “buy-A” rating.
Risk warning
Technology upgrades and the risk of brain drain. If the quality of the company's newly developed products is not recognized by customers, or the R&D project cannot be successfully commercialized, it may face the risk of losing orders and declining market position. For some time to come, the relative shortage of professionals will still be one of the important factors limiting the development of the industry. If the company's core technical personnel are lost, it will adversely affect the company's R&D and production.
Macroeconomic and industry cycle fluctuations. The integrated circuit packaging testing service industry is highly cyclical. At the same time, downstream terminals for products such as display driver chips, power management chips, and RF front-end chips are mainly consumer electronics. Demand for related products has changed greatly due to the rapid performance update speed and variety of brands and specifications. In the future, if the global economy continues to be sluggish, consumer consumption may fall short of expectations, which will adversely affect the company's production and operation.
Market competition has intensified. In the field of display driver chip packaging and testing, in addition to leading industry segments Qibang Technology and Nanmao Technology, which continue to maintain leading positions in related fields, integrated packaging and testing companies are also actively planning related fields through self-construction (such as Tongfu Microelectronics) or cooperation with other parties (such as Sun Moon Light and Tongxingda). Compared with leading sealing and testing companies in the industry, the company has a certain gap in terms of asset size, capital strength, and scope of products and services. If the company does not take good measures to deal with it, it may adversely affect the company's business development and operating performance.
The development of non-display businesses is disadvantageous. Although the company's non-display business is currently growing rapidly, the overall scale is relatively small. It accounts for a relatively high proportion of non-full manufacturing processes, and is mainly concentrated in chip fields such as power management and RF front-end. Customers are mainly concentrated in China, and there is a big gap in comprehensive strength compared to leading integrated packaging and testing companies such as Changdian Technology, Tongfu Microelectronics, and Huatian Technology. If comprehensive sealing and testing companies invest on a large scale in related segments, the introduction of non-display customers falls short of expectations, or there are adverse changes in the downstream terminal market environment, there is a risk that the development of non-display sealing and testing services will be unfavorable.