Incidents:
On April 22, 2024, the company released its 2023 annual report and 2024 quarterly report. In 2023, the company achieved revenue of 13.861 billion yuan, net profit attributable to mother of 907.061 million yuan, and net profit of 5.5691 million yuan after deducting non-return to mother. The first quarter of 2024 achieved revenue of 3,954 billion yuan, net profit attributable to mother of 54.766 million yuan, and net profit of non-return to mother of 51.3389 million yuan.
Demand remains under pressure in 2023, improving in 24Q1
Affected by the macro environment, the company's revenue declined slightly in 2023. In 2023, the company successfully developed a number of competitive 5G modules. The 23Q4 company achieved revenue of 3.894 billion yuan, with year-on-year/month-on-month growth rates of -4.88%/12.72%, respectively. The 24Q1 company achieved revenue of 3,954 billion yuan, with year-on-year/month-on-month growth rates of 26.06%/1.54%, respectively.
Cost control was strengthened, and the gross margin in the 23Q4 single quarter was clearly fixed month-on-month, and the company's gross margin fell 0.84 pct year on year in 2023. The company's gross margin levels in 2023/23Q4/24Q1 were 18.94%/20.42%/16.93%, respectively. The 23Q4 single-quarter recovery was significant, mainly due to the company's strengthened cost control and some exchange rate effects.
Cost reduction and efficiency improvements continue to advance
2024Q1's sales/management/R&D expenses rate was 2.75%/2.43%/9.62%, respectively, down 0.43/1.19/0.67pct from month to month. On the other hand, 2024Q1's net operating cash flow decreased by 354.59% year on year, mainly due to an increase in the company's business volume in 2024Q1 and an increase in raw material preparation.
The automotive business has received large orders, and there is plenty of momentum for long-term growth
Short-term companies are reducing costs by slowing down recruitment/increasing unit personnel output, etc., and profit margins can be expected to recover and be flexible. In the medium to long term, with the accelerated development of AI and the upgrading and iteration of the Internet of Things in the context of the Internet of Everything, 5gRedCap is expected to be implemented at an accelerated pace. On the other hand, the company announced on April 7 that it had received a fixed letter of about US$742 million to US$1,309 million. The automotive business received large overseas orders. This matter is not expected to have a substantial impact on business performance in 2024 and 2025, but it will have a positive effect on future business performance.
Profit Forecasts, Valuations, and Ratings
We expect the company's revenue for 2024-2026 to be 173.43/217.01/27.797 billion yuan, respectively, with year-on-year growth rates of 25.12%/25.13%/28.09%, net profit to mother of 4.51/6.28/ 907 million yuan, year-on-year growth rates of 396.98%/39.25%/44.50%, EPS 1.70/2.37/3.43 yuan per share, respectively, and a 3-year CAGR of 115.44%. Referring to comparable company valuations and considering the company's leading position, we gave the company 30 times PE in 2024, with a target price of 51 yuan, maintaining a “buy” rating.
Risk warning: Vehicle module shipments fall short of expectations, CPE expansion falls short of expectations, and market competition intensifies.