2023 is in line with market expectations. The 1Q24 results and 1H24 forecast are in line with our expectations. Lixun Precision announced 2023 results: operating income of 231.905 billion yuan, up 6% year on year, and net profit to mother of 10.953 billion yuan, up 20% year on year. It is within the previous performance forecast range and is in line with market expectations. Corresponding to the 4Q23 quarter, Lixun achieved operating income of 76.031 billion yuan, an increase of 5% over the previous year, and net profit to mother of 3,578 billion yuan, an increase of 30% over the previous year.
At the same time, Lixun released 1Q24 results, achieving operating income of 52,407 billion yuan, an increase of 5% year on year, and net profit to mother of 2,471 billion yuan, an increase of 22% year on year, in line with our expectations.
In addition, Lixun released the 1H24 forecast. Net profit increased 20-25% year over year to 52.27-54.45 billion yuan, corresponding to the 2Q24 single quarter, and is expected to reach 27.56-2,974 billion yuan, an increase of 18-27% over the previous year, exceeding the pessimistic expectations of some markets and in line with our expectations.
Looking specifically at 2023, Lixun's consumer electronics/communications/automotive business increased 10/13/ 50% year-on-year to 1971.83/145.38/9.252 billion yuan, respectively, and the computer business fell 34% year-on-year to 7.492 billion yuan. We believe that the main reason is that the PC decline for major North American customers in 2023 was quite obvious, which dragged down Lixun's related business.
Development trends
The consumer electronics business is expected to benefit from Apple's AI upgrade and continue to grow steadily. The iPhone parts and assembly business is still the main source of profit for Lixun's consumer electronics business. In “The Age of AGI, Can Apple Return to the King”, we thoroughly analyze Apple's future AI-related layout and development trends. Considering that Apple occupies 7-80% of the global high-end mobile phone market (over $800), we believe that users may actively switch devices after Apple's AI upgrade and make hardware and software payments for the cost reduction and efficiency brought about by AI. As a core supplier of assembly and components for terminal products such as Apple phones, headsets, and watches, Lixun's valuation is expected to benefit from Apple's AI sentiment boost. Profits are expected to grow steadily as mobile phone shipments improve and parts innovate.
The direction of MR and communications will help drive future growth. 1) MR: Since Vision Pro went on sale in North America at the beginning of the year, sales have continued to grow, which is basically in line with expectations. We expect Apple Vision Pro to continue to expand production capacity in the future as bottlenecks such as silicon-based OLEDs improve production capacity and open 2 or 3 batches of sales regions and countries. Lixun is expected to fully benefit as the core assembly supplier. 2) Communications: According to the company announcement, Lixun has a comprehensive layout of 112/224G copper connection products, and cooperation with North American customers is progressing smoothly. We are optimistic that the company will use its technical and cost advantages to enter supply and achieve mass production in the future.
Profit forecasting and valuation
Considering weak demand from North American customers in the short term, we lowered Lixun 2024e EPS by 6% to 1.95 yuan and introduced 2025e EPS by 2.35 yuan. The current stock price corresponds to 2024/25e 14.2/11.8x P/E. We maintained our outperforming industry rating and lowered our target price by 5% to 36.0 yuan at the same time, corresponding to 2024/25e 18.4/15.3xP/E. Compared with the present, there is still room for 30% increase.
risks
Demand for consumer electronics terminals is weak; development in fields such as AI, MR, and communications falls short of expectations.