Event Overview:
1) On April 19, ArcSoft released the “2023 Annual Report”. In 2023, the company achieved total revenue of 670 million yuan, up 26.07% year on year; net profit to mother was 88 million yuan, up 53.03% year on year; net profit after deducted from mother was 68 million yuan, up 898.87% year on year.
2) On the same day, the company released the “2024 Quarterly Report”. 2024Q1 achieved revenue of 184 million yuan, up 13.94% year on year; net profit to mother was 34 million yuan, up 21.21% year on year; net profit without return to mother was 30 million yuan, up 23.91% year on year.
The smart car business has entered the stage of large-scale expansion, driving profitability recovery. Looking at Q4, the company achieved revenue of 167 million yuan, an increase of 18.85% over the previous year, and net profit to mother of 0.07 billion yuan, an increase of 52.50% over the previous year, achieving relatively rapid growth. By business, 1) The smartphone vision business achieved revenue of 581 million yuan, an increase of 22.82% over the previous year, and achieved rapid growth even under pressure from downstream prosperity. Mainly because the company's night scene, HDR, superscore, portrait, and motion capture solutions based on intelligent Turbo Fusion (Turbo Fusion) technology were recognized by downstream customers, and mass production was implemented and continued to be shipped. 2) The intelligent driving and other IoT smart device businesses achieved revenue of 74 million yuan, an increase of 67.26% over the previous year, mainly due to the increase in the number of fixed targets in the company's smart car business and the corresponding mass production and delivery of fixed-point products, which gradually achieved volume.
Furthermore, the company's profitability rebounded significantly, mainly due to continued increase in gross margin and increased interest income. Among them, the company's gross margin reached 90.35% in 2023, +1.86pcts year on year, and the 24Q1 gross margin further increased to 91.84%. Mainly due to the intelligent driving business completing pre- and post-installation kinetic energy conversion, the gross margin rose from 44.12% in '22 to 85.96% in '23. We believe that with the expansion of the company's intelligent driving business and the continuous increase in revenue share, the company's gross margin is expected to remain at a high level.
The outboard project was successfully introduced, and ADAS products received a fixed target
In terms of customer promotion, in 2023, the company added a number of designated front-end mass production projects with car manufacturers such as Changan New Energy, Great Wall, Ruilan, Jikrypton, Geely, Hezhong, Changan, Rantu, Chery, BAIC New Energy, and FAW Hongqi. In terms of product coverage and promotion, ① In-cabin: The capacity of the company's in-cabin and in-cabin algorithm products continues to increase, and dozens of models have been mass-produced and shipped using algorithms such as DMS, OMS, Face ID, TOF gestures, external posture recognition, health monitoring, AVM, smart tailgate, sentry monitoring, etc.; ② Outboard: The company's algorithm products have been gradually mass-produced and delivered. Since its launch, AVM, which has 3D capabilities, has been mass-produced, and nearly 20 amplified products based on AVM cameras have also achieved mass production. completed Fixed-point import and mass production for OEM customers. In addition, ADAS products with infrared night vision capabilities have also been successfully introduced at fixed points. In the long run, we are optimistic that in the field of smart cars, especially smart cockpits, the company will continue its previous advantages in the smartphone field, and rely on a stable industrial chain foundation, excellent business model, reliable engineering implementation capabilities, and leadership in visual algorithm technology to achieve medium- to long-term growth momentum in the wave of automobile intelligence.
AIGC smart shopping products continue to be upgraded, actively deploying XR to build a spatial computing system 1) AIGC: On October 23, the company launched the AIGC smart commercial product PhotoStudio AI Smart Commercial Cloud Studio, which can generate model fitting maps with one click. In 2024, the company will promote AIGC commercial video generation; at the same time, the company will continue to update and iterate the product features of the clothing version and commercial version to expand the product categories supported by the clothing map. In addition, in 2024, the company expects to launch the PhotoStudio AI personal terminal application, covering more smart device fields and application scenarios, and opening up long-term application space. 2) XR: The company has a forward-looking layout in the XR field, building a spatial computing technology system from the four dimensions of calibration, perception, interaction and visual presentation to create a one-stop, comprehensive product solution for customers. For headphone SLAM and controller SLAM, the company has improved positioning and tracking accuracy; for video perspective (VST) related algorithms, the company has optimized the latency of the entire process to the leading level in the industry; in addition, the company also focused on implementing and improving XR's Hand and Gaze Fusion Interaction (Hand and Gaze Fusion Interaction) technology (Hand and Gaze Fusion Interaction), which allows users to control the virtual world through gestures and gaze.
Investment advice:
With AI vision algorithms as the core, the company is deeply involved in smartphone camera technology and enters the smart car circuit through technological epitaxial extension. Currently, both of the company's core businesses have ushered in positive changes, and performance has been reversed. Furthermore, the company actively lays out cutting-edge technology fields such as AIGC and XR, and future development is worth looking forward to. We expect the company's revenue for 2024-2026 to be 839/10.27/1,231 million yuan, respectively, and net profit to mother of 1.62/2.41/341 million yuan, respectively, maintaining the buy-A investment rating. Considering the company's software licensing business model and forward-looking layout in the AIGC field, we used PS for valuation and gave a 6-month target price of 41.33 yuan/share, corresponding to 20 times the dynamic market sales rate in 2024.
Risk warning: 1) the risk that the company's new business will fall short of expectations; 2) the risk that the smartphone industry will fall short of expectations; 3) the risk of increased market competition.