The company's revenue resumed year-on-year growth in the second half of 2023. 2023H2, the company's revenue increased 7.3%/21.9% yoy to RMB 17.4 billion. According to the division, the revenue of optical components/optoelectronic products/optical instruments was 52,19/3 billion, respectively, accounting for 30%/68%/2%. According to the terminal product type, the revenue of mobile phone-related products/automobile-related products/XR related products/other products was 112/28/14/1.9 billion, respectively, accounting for 65%/16%/8%/11%, respectively. The company's gross margin recorded 14.1% in the second half of the year, a slight decrease of 0.8 pct from month to month and 4.9 pct year on year. H2 recorded net profit of 660 million yuan, a year-on-year decrease of 37%. The net profit margin to mother was 3.8%, or -2.7 pct/month-on-month. The company's net profit for the whole year decreased by 54.3% year-on-year to 1.1 billion, mainly due to poor overall market demand, intense industry competition, and product downsizing, which put pressure on the ASP and gross margin of mobile phone lenses and mobile phone modules.
The profitability of mobile phone products is expected to improve. 2023H2, the company's mobile phone-related product shipments grew at a relatively good rate. Mobile lens shipments were 660 million, up 22%/28% year over year; mobile phone camera module shipments were 310 million, up 37%/23% year over year. However, due to pressure on ASP, mobile-related revenue in the second half of the year only increased 7% year over year to 11.2 billion. Looking ahead to 2024, we expect that as high-end customers pull in goods, the company's mobile phone lens shipments are expected to increase by 5% year on year, total mobile phone module shipments remain flat but the structure is expected to improve, and the gross margin of mobile phone lenses and modules is expected to increase significantly.
The automotive business is growing steadily and is highly profitable. 2023H2, the company's revenue from automotive-related products increased 18% year on year and 14% month-on-month to 2.8 billion yuan, accounting for about 16%. 1) In terms of automotive lenses, the company still ranked first in the world in the market share of automotive lenses in 2023, further widening the gap with the second largest in the world. Vehicle lens shipments increased 5.9% year-on-year in the second half of the year to 43.73 million pieces. We expect automotive lens shipments to increase by around 10% in 2024, and gross margin is expected to remain above 40%. 2) In terms of in-vehicle modules, the company's 8-megapixel in-vehicle modules have received targeted projects from the world's largest automotive OEMs, further consolidating the number one global market share position for 8-megapixel automotive modules. We expect revenue from the automotive module business to increase by 20%-30% year-on-year in 2024. 3) In the emerging field of automotive optics, the company added 3 new lidar mass production projects, mass production of PGU modules using the digital light processing (DLP) technology route, and obtained a number of fixed-point projects for high-pixel headlight products within 2023. Among them, the core products of mega-pixel headlights have already been mass-produced.
The VR business has made new progress in customer acquisition. The company's XR business declined in 2023. In particular, revenue in the first half of the year decreased 29% year on year to 470 million. There was an improvement in the second half of the year, and revenue fell slightly by 0.1% year on year to 1.4 billion yuan. In 2023, the company will further deepen strategic cooperation with VR customers around the world and successfully achieve mass production of key projects. In addition, the company has also become the preferred supplier of next-generation perception and interaction modules for a world-renowned VR customer.
Investment advice: Considering the intense competition in the industry, we lowered the profit forecast appropriately. The company's revenue for 2024-2025 is estimated to be 355/393/42.9 billion yuan, respectively, +12%/+11%/+9%; net profit to mother is 19.25/2.9 billion yuan, +72%/+33%/+16% year-on-year. We gave it a target market value of HK$54.2 billion and a target price of approximately HK$49, corresponding to 20X 2025 P/E, maintaining a “buy” rating.
Risk warning: The risk that the macroeconomic environment will change beyond expectations, the risk that the mobile phone market will continue to be weak, and the risk that the growth rate of the automotive and AR/VR markets will not meet expectations.