1Q24 revenue increased 22% year over year, and net profit increased by more than 70%. 1Q24 achieved operating income of 387 million yuan (YoY +21.7%, QoQ -4.7%), and the expanded product matrix was able to meet a wider range of customer application needs and achieved overall revenue growth; net profit to mother was 54 million yuan (YoY +73.4%, QoQ +10%), after deducting net profit of 48 million yuan (YoY +88.6%, QoQ +17.8%), excluding the impact of share payments. Net profit to the mother increased to 41.9% (YoY + 1.2pct, QoQ +1.8pct). Revenue growth, stable gross margin, and cost growth rate control help profit growth at the rate of revenue growth.
The share of chip revenue has increased, and R&D investment continues to increase. According to product types, the share of 1Q24 chip revenue rose to 42.7%, and module revenue fell to 56.7% (1Q23 34.2%/64.6%), and chip and module gross margins were 47.1% (YoY -1.3pct) and 38.1% (YoY +1.3pct), respectively. Mainly because chip customers mainly use RMB pricing, the cost is mainly in US dollars. The appreciation of the US dollar also puts pressure on chip gross margin. 1Q24 invested 104 million yuan in R&D (YoY +21.5%), and the R&D staff grew to 490 (YoY +8.7%). The R&D strategy is to maintain self-research on core technology and invest heavily in research and development of underlying technology.
Facing the AI era, it is expanding in the direction of “processing+connecting”. The company's ESP32-S3 chip adds vector instructions to speed up neural network computation and signal processing, and can achieve high-performance applications such as image recognition, voice wake-up, and recognition. The ESP32-C6 chip provides the experience of Wi-Fi 6 technology; the ESP32-C5 is the company's first 2.4 & 5 GHz dual-band Wi-Fi 6 product, achieving a major breakthrough in high-frequency Wi-Fi; ESP32-H2 marks the company's entry into the Thread/Zigbee market, supporting Matter applications, further expanding the wireless SoC product line and technology boundaries; the ESP32-P4 is where the company broke through the traditional communication+ IoT market and entered the multimedia market The first SoC without wireless connectivity and can be used by customers with high demand for edge computing power.
Investment advice: “Processing+Connect” chip design company to maintain “gain” rating.
We expect revenue for 2024-2026 to be 1,77/22.422/2,841 billion yuan; according to the first quarterly report, the company's consolidated gross margin was slightly higher than our previous expectations, raising net profit to mother to 1.95/2.85/408 million yuan (previous value: 1.89/2.77/ 398 million yuan). The current stock price corresponds to 40.5/27.8/19.4 times PE in 2024-2026, maintaining a “gain” rating.
Risk warning: demand falls short of expectations; new product development and introduction falls short of expectations, etc.