Revenue and net profit improved quarterly in 2023, and both 1Q24 revenue and net profit increased by double digits year-on-year
Changdian published its annual report for the year 23 and the quarterly report for the year 24. In 2023, we achieved revenue of 29.661 billion yuan, a year-on-year decrease of 12.1%, and net profit to mother of 1,471 billion yuan, a year-on-year decrease of 54.5%. However, on a quarterly basis, the company's revenue and net profit showed a quarterly improvement trend. 4Q23 revenue and net profit increased 11.8%/4.0% month-on-month respectively, mainly due to the continued recovery in demand for consumer electronics such as smartphones, and capacity utilization maintained an upward trend. 1Q24 performance slowed month-on-month due to seasonal factors, but revenue increased 16.8% year over year to 6.842 billion yuan. However, considering that terminal demand may show a slow recovery trend throughout the year, the company's capacity utilization rate and gross margin may improve slower than our previous expectations, so the net profit forecast for 24/25 was lowered by 29%/25% to 17.70/2,291 billion yuan, which is estimated at 2,872 billion yuan in 26. It gave 33.7x PE with a 24-year premium over the industry (comparable to the company Wind's consistent expected average of 30.7x, mainly due to the company's preemptive layout advantage in advanced packaging fields such as 2.5/3D), maintaining a target price of 33.32 yuan and a “buy” rating.
Q1 review: The recovery in terminal demand drove the same increase in revenue, and price and industrial/automotive business adjustments dragged down gross profit. According to Canalys, 1Q24 global smartphone and PC sales increased 11%/3.2% year over year. Android smartphone manufacturers achieved good year-on-year growth, driving the company's capacity utilization rate to increase significantly year over year.
1Q24's revenue increased 16.8% year over year to 6.842 billion yuan. Gross margin increased 0.4 pct year on year, but fell 1.0 pct month on month. The main reasons: 1) operating rate declined month-on-month; 2) competition for some traditional domestic packaging was fierce, and prices were under pressure; 3) high-margin customers such as automobiles and industry were in the inventory adjustment stage, and product structure adjustments dragged down gross profit margins. In addition, the company continued to increase investment in emerging high-growth markets such as HPC 2.5D advanced packaging, RF SIP/AIP, and automobiles. Q1 R&D expenses were 381 million yuan, an increase of 23.4% over the previous year. As a result, Q1 net profit attributable to mother decreased by 72.8% month-on-month, but still increased by 23.0% to $135 million.
Outlook: Net profit is expected to continue the gradual improvement trend in 24, and the high value-added sector is expected to contribute long-term growth momentum to 2024. Considering that demand for consumer electronics such as smartphones and PCs is expected to continue to recover, we expect the company's operating rate to bottom out in Q1 and gradually recover. We expect net profit to continue the quarterly growth trend in 24, increasing 20.3% year-on-year to 1.77 billion yuan for the whole year. Looking at the medium to long term, we are optimistic:
1) Previously, the company announced that it plans to acquire 80% of Shengdi's shares in the storage field. The product types include iNAND flash memory modules, SD, microSD memory, etc., confirming that the company continues to make efforts in high-value-added fields; 2) After China China Resources becomes an actual controller, its advantages such as international vision and resource integration are expected to continue to strengthen Changdian's global competitiveness in the future. At the same time, the risk of reducing the holdings of large funds and potential geopolitical risks were released.
Maintain target price of $33.32 and “buy” rating
Considering the weak recovery trend in terminal demand, we lowered our 24/25 net profit forecast by 29%/25% to 17.70/2,291 billion yuan, which is estimated at 2,872 billion yuan in 26, corresponding to EPS of 0.99/1.28/1.61 yuan.
The company was given 33.7x PE for 24 years, maintained a target price of $33.32, and maintained a “buy” rating.
Risk warning: The prosperity of the sealing and testing industry falls short of expectations; the risk that new technology and product development will fall short of expectations.