1Q24: Revenue of 19.312 billion yuan, down 20% year-on-year
Goertek released its 1Q24 quarterly report, with revenue of 19.31 billion yuan (yoy -20%), net profit of 380 million yuan (yoy +257%), net profit of non-return to mother 275 million yuan (yoy +1723%). The company's 1Q24 gross profit margin was 9.2% (qoq-1.39pp, yoy+2.22pp). We believe that demand for game consoles such as PS5 is lower than Sony's expectations, dragging down the company's game console business and leading to a decline in revenue. We expect the gross margin of the intelligent acoustics business to continue at a similar level in the second half of '23, leading to a year-on-year improvement in net profit deducted from mother.
We expect net profit of 18.4/23.2/2.49 billion yuan in 24/25/26. Although we see that leading companies such as Apple/Huawei are developing their MR products slowly, considering the company's potential future growth elasticity as the world's largest VR foundry, a 24-year valuation of 37.23x (A share is comparable to the average consistent profit forecast of the company Wind 21.5x), corresponding to a target price of 20 yuan. Buy.
By business: Game consoles are the main factor driving down the company's revenue level. 1Q Goertek's revenue was 19.31 billion yuan, down 20% year on year and 22% month on month. We saw that Sony stated in its financial report that PS5 sales volume in 2023 was 21 million, which is lower than the previous target of 25 million. We expect inventory formed by the 4 million gap to be the main reason for the decline in revenue in Goertek 1Q24. On the other hand, the Meta Quest 34Q23 shipped 1.168,000 units, lower than the 2.8 million units shipped during the quarter Quest 2 went on sale. Overall demand for the Quest 3 was not strong, which may also have an impact on the company's revenue. We expect the profitability of other acoustics and other businesses to maintain the recovery trend at the end of 23, leading to an improvement in net profit deductions.
2024 outlook: Profitability improvement. Following the progress of VR business recovery in 2024, we expect 1) the company may continue to gradually recover its share in the smart headphone sector. Revenue from smart acoustics equipment is expected to increase 20% year over year, and profitability is expected to return to 8.9%; 2) Driven by MR products such as Meta, smart hardware revenue increased 10.7% year on year, and profitability remained at the same level as 7.8% in 23. Overall, we expect the company's revenue to increase 10.7% year on year to 109.12 billion yuan in 2024, gross margin to recover 0.7 pp year on year, and net profit to mother to recover 69% year on year to 18.4 yuan.
We believe that the boost in VR applications of big AI models and the introduction of low-cost products are expected to improve the VR industry's shipments in 24 years.
Maintain the purchase and target price of $20
We expect net profit of 18.4/23.2/2.49 billion yuan in 24/25/26. Although we see that leading companies such as Apple/Huawei are developing their MR products slowly, considering the company's potential future growth elasticity as the world's largest VR foundry, a 24-year valuation of 37.23x (A share is comparable to the average consistent profit forecast of the company Wind 21.5x), corresponding to a target price of 20 yuan. Buy.
Risk warning: TWS/VR/AR demand fell short of expectations; mass production climbed, and rising raw material prices lowered profit margins.