1Q24 results are in line with our expectations

The company announced its 2023 annual report and 2024 quarterly report. In 2023, the company achieved operating income of 670 million yuan, an increase of 26.07% over the previous year; achieved net profit of 88 million yuan, an increase of 53.10% over the previous year; and realized net profit of 68 million yuan without return to mother, an increase of 902.62% over the previous year. Corresponding to 4Q23, the company achieved operating income of 167 million yuan, an increase of 18.85% over the previous year; achieved net profit of 6.8305 million yuan, an increase of 50.72% over the previous year; and net profit loss of 719.36 million yuan after deducting non-return to mother. The 2023 results are in the previously forecast range. In the first quarter of 2024, the company achieved operating income of 184 million yuan, an increase of 13.93% year on year; realized net profit of 34 million yuan, an increase of 21.21% year on year; realized net profit of 30 million yuan without return to mother, an increase of 23.91% year on year. 1Q24 results were in line with our expectations.

Financial concerns: 1) Increased gross margin. Gross margin increased 1.86 ppt to 90.35% year over year in 2023, which we believe is mainly driven by the automotive business. Benefiting from the increase in revenue share of the high-margin in-cabin vision algorithm VisDrive, the company's gross margin for the automotive business reached 86.0% in 2023, a significant increase of 41.9 ppt over the previous year, driving the company's overall gross margin level. 2) By business, the 1Q24 mobile phone business achieved revenue of 161 million yuan, a steady increase of 8.9% over the previous year; the automobile business achieved revenue of 121 million yuan, a year-on-year increase of 92.1%, reflecting the continuous growth trend of the company's automobile business.

Development trends

Turbo Fusion continues to innovate, and the mobile phone business is expected to maintain steady growth. In 2023, on the basis of the original functions, the company will continue to expand new functions such as sports capture, portrait capture, telephoto ultra-definition, and high-resolution super score, which we believe is expected to increase the value of stand-alone machines and customer penetration.

The automotive business realizes revenue and extends the boundaries of capabilities from smart cabins to smart driving. The company's automobile business revenue both achieved rapid growth in 2023 and 1Q24, and we have seen the gradual transformation of automobile targets into incremental performance contributions. Looking forward to the future, we believe that the company will continue to expand beyond the cabin and overseas. On the external side, the AVM outboard algorithm has been targeted by dozens of models since its launch, and has actively invested in research and development of integrated cabin and mobile parking solutions. Overseas, the companies VisDrive and Tahoe have been selected for a number of overseas models. We believe that the company's automobile business is expected to continue to grow rapidly under the strategy of “expanding to the outside of the cabin, overseas, and software and hardware integration”.

The commercial sales business is progressing steadily. 3Q23 launched the Smart Shopping Cloud Studio and launched the clothing map function in 4Q23. We expect that in 2024, the company will reach end consumers through mini-programs and apps, continue to expand AIGC coverage, and enhance the company's product awareness.

Profit forecasting and valuation

We are optimistic about the company's automobile business volume prospects. The 2024-25 revenue will be revised by 5%, 5% to 860 million yuan and 1.04 billion yuan, and the 2024-25 profit will be revised 11%, 11% to 130 million and 170 million yuan, respectively.

The current stock price corresponds to 14x and 11x P/S for 2024-25. We maintain our outperforming industry rating, based on a 15-fold P/S increase target price of 5% to 31.80 yuan in 2024, and there is still room for a 10% increase from the current stock price.

risks

Demand for consumer electronics fell short of expectations, and the smart driving and smart commercial sales business fell short of expectations.