1Q24 results are in line with our expectations
Goertek Co., Ltd. announced 1Q24 results: operating income of 19.312 billion yuan, a year-on-year decrease of 20%, and net profit to mother of 380 million yuan, an increase of 257% year-on-year, in line with our expectations. We believe that Goertek's 1Q24 has performed well. The main reasons are: 1) the company's various businesses developed smoothly in 1Q24, and profitability recovered significantly year-on-year; 2) the revenue side declined slightly as PS5 entered the end of the product cycle, but the company optimized the profitability of related businesses through cost reduction and efficiency to ensure the company's overall profit performance.
Specifically, the gross margin of Goertek 1Q24 increased by 2.2ppt to 9.2% year-on-year. We believe that the gross margin has improved mainly due to the release of new products from North American VR customers, the improvement in shipping conditions, and the resumption of supply of 2H23 headphone products from North American customers. On the cost side, Goertek's expenses increased by 0.7 ppt to 8.0% year on year, mainly due to the fact that R&D expenses increased 0.3 ppt to 4.3% year on year. We believe that the company will continue to invest in R&D and lay out cutting-edge technology. Net profit margin improved significantly, rising 1.6ppt to 2.0% year over year.
Development trends
AI phones drive up the value of parts and are expected to drive shipment growth. We believe that voice interaction plays an important role in AI phones, such as the Samsung S24 series. After connecting to the Gemini model, intelligence was greatly improved, and user feedback was positive. We believe that the microphone module may be upgraded to suit a more accurate and high-quality user voice interaction experience. As a global leader in the field of acoustics, Goertek is expected to be the first to benefit from AI-driven acoustic module upgrades and achieve value increases. Furthermore, we are optimistic that AI terminals can improve user efficiency and achieve cost reduction and efficiency. We believe that as more brands release AI phones, users may actively switch devices to try more efficient interactive experiences, and Goertek's precision parts business is expected to fully benefit, driving both ASP and shipment growth.
ARVR terminals continue to be upgraded, and the era of spatial computing has arrived. With the release and sale of Apple Vision Pro, market acceptance of spatial computing continues to increase. Recently, AR brands such as Rokid and Xreal have also used spatial computing as one of their main selling points. We believe that spatial computing may become the future development trend of ARVR terminals, and it is expected that relevant software and applications will be launched in dimensions such as interactive upgrades, immersive experiences, and production efficiency improvements to attract users to purchase. At the same time, we believe that spatial computing is expected to improve hardware configurations such as ARVR display resolution, number of cameras, chip computing power, and memory. As the global ODM leader in ARVR and the main supplier of core components such as optics, Goertek believes that it can benefit from the increase in ARVR shipments in the future era of spatial computing and drive the company to achieve steady and continuous growth.
Profit forecasting and valuation
We maintain Goertek's 2024/25e EPS at 0.71/0.86 yuan, and the current stock price corresponds to 2024/25e21.1/17.3x P/E. We maintain our industry rating and target price of 21.0 yuan, corresponding to 2024/25e29.6/24.3x P/E. Currently, there is still room for 40% increase.
risks
Downstream demand for traditional terminals such as mobile phones is weak; development in new fields such as ARVR falls short of expectations.