Incidental: The company released its 2023 annual report and results for the first quarter of 2024. In 2023, the company achieved revenue of 2.76 billion yuan (yoy: +46.57%), net profit to mother of 124 million yuan (yoy: +0.99%), and net profit of non-return to mother of 0.29 million yuan (yoy: +135.96%). 24Q1 achieved revenue of 653 million yuan (yoy: +70.27%, qoq: +6.69%) and net profit to mother of 0.28 million yuan (year-on-year correction, qoq: +371.79%), which is in line with expectations.
In 2023, the watch business continued to expand, and the watch business continued to grow rapidly. The company continued to expand its customers and application scenarios in 2023. Shipments of BES2700 series products grew rapidly. Looking at the spin-off business, the company sold 71.813,900 smart Bluetooth chips throughout the year (yoy: +99.37%), achieving revenue of 1,169 million yuan (yoy: +59.28%), and the company's high-end product shipments continued to grow at a high rate; ordinary Bluetooth chips sold 886.92 million units (yoy: +11.07%), achieving sales revenue of 360 million yuan (yoy: -0.08%) in the field of mid-range and low-end Bluetooth chips Price pressure is high. The company's annual gross margin was 34.20% (yoy: -5.17pct), mainly due to price increases in upstream fabs and increased market competition. Among them, 23Q4's gross margin was 32.55% (qoq: -1.9pct). R&D investment is stable. By the end of 2023, the total number of R&D personnel was 592, accounting for 85.8% of all employees. R&D is driving the company's growth. By the end of 2023, the company's inventory was about 660 million yuan, a year-on-year decrease of 290 million yuan, and depreciation pressure was basically released.
In 24Q1, the consumer market picked up, and gross margin rebounded steadily. The company achieved revenue of 653 million yuan (yoy: +70.27%, qoq: +6.69%) in 24Q1, mainly due to the recovery of the consumer market and the continued increase in demand for chips from downstream customers. In particular, the rapid increase in sales volume and increase in sales share of smartwatch and bracelet chips contributed to the rise in average chip prices. 24Q1 gross margin was 32.93% (qoq:
+0.38pct), overall gross margin bottomed out and rebounded. In terms of cost ratio, the company strengthened R&D investment control. In 24Q1, the company's R&D cost ratio was 25.51% (yoy: -5.90pct, QoQ: -4.61pct), and the cost optimization was remarkable. The company strengthened inventory procurement during the reporting period, and market stocking demand increased. The company's investment income declined by 53.18% year-on-year during the 24Q1 reporting period, limiting the flexibility of overall performance.
Mass production and promotion of BES 2800 series products, optimistic about the company's layout of end-side AIoT scenarios. In 2023, the company's BES 2700 series products continued to grow, and the downstream application field continued to expand. Currently, TWS earphones, watches, bracelets, smart glasses, etc. continue to be implemented. The company specially launched BES2700IBP wearable SoC products, which have been recognized by customers from many brands. At the same time, the company's next-generation 6nm smart wearable chip, BES 2800, has now been successfully filmed, integrating multi-core CPU/GPU, NPU, high-capacity storage, low-power Wi-Fi and dual-mode Bluetooth, which can provide the company's wearable market with powerful computing power and a high-quality seamless connection experience. The product has now entered the marketing stage and is expected to be mass-produced in 2024. We are optimistic that the company will continue to penetrate AIoT and other scenarios to continuously increase its market share.
Investment advice: We expect revenue for 2024-2026 to be 27.51/35.23/4.463 billion yuan, net profit to mother of 2.90/4.41/582 million yuan, and corresponding PE of 51.13x/33.58x/25.47x, maintaining the “recommended” rating.
Risk warning: the risk of downstream demand falling short of expectations, the risk of increased market competition, the risk of new product releases falling short of expectations, and the risk of changes in geopolitical policies.