Incident: The company announced its quarterly report for '24, with Q1 revenue of 7.75 billion yuan +18.9% month-on-month, net profit of 290 million yuan, -38.7% month-on-month -54.2%, after deducting non-return of 260 million yuan -6.7% month-on-month -54.8%, including government subsidies of 39 million yuan; gross profit margin of 13.6% yoy -1.2pcts month-on-month -4.0pcts, net profit margin 3.8% yoy -3.5pcts month-on-month. Based on the company's recent situation, our review is as follows:
The 24Q1 performance was better than the market's pessimistic expectations. The year-on-year increase in the company's 24Q1 revenue was mainly due to a 56.5% year-on-year increase in revenue from the new energy business to 1.83 billion yuan, and the steady business performance of customer A. Although the profit side declined year-on-year, the decline was better than the market's pessimistic expectations. We believe that the loss reduction in the LED business was better than expected, the increase in the operating rate of the new energy vehicle business had a positive contribution, and the A customer business continued to grow slightly. On the cost side, the cost rates for marketing management and research were 1.0%/3.4%/3.3%/-0.06%, respectively, compared to -0.1/+0.3/-2.1pcts. The increase in R&D expenses was mainly due to the company adding some R&D projects around the core business. The increase in financial expenses was mainly due to higher interest income than the same period last year, and an increase in exchange earnings.
Q2 is expected to reach an inflection point in performance. We will focus on LED business loss reduction and core customer order introduction throughout the year, and the A+T long-term core strategy will not change. In the short term, considering the rapid growth of the new energy business and the LED and touch module business continuing to reduce losses driven by management improvements and cost reduction and efficiency, I think the company's Q2 is expected to usher in an inflection point in performance. Looking at the medium to long term, in terms of consumer electronics, the company has successively introduced module models for A customer displays, batteries, and cameras. New MR products are also expected to be released, and ASP and share will continue to increase, and there is still room for growth; in automotive electronics, the three major business sectors are working together, and new products such as precision manufacturing components such as soft boards and PCBs, battery structural parts, water-cooled panels, and white bodies are expected to gradually reach 10,000 yuan. The company will further increase its investment in rapid expansion of domestic and foreign production capacity, and is expected to usher in a period of rapid growth in AI computing power; On the one hand, the company has increased the number of AI servers R&D and development in automotive and other fields, and the deployment of new production capacity in Thailand are expected to make progress in major European and American customers, including T customers, and domestic H customers; while the touch and optoelectronic display business, the touch control business integrates Suzhou chips to further expand into new fields such as automobiles and industrial control, while LED displays can focus on loss reduction. With the continuous advancement of the company's consumer electronics+new energy vehicle two-wheel drive strategy, the company's profitability is expected to gradually recover.
Maintain a “Highly Recommended” investment rating. Taking into account various factors such as the steady progress of the company's LED business loss reduction, the continued rise in new production capacity for supporting T customers, and investment in overseas base construction, we forecast 24-26 revenue of 380.26/429.69/47.266 billion yuan, net profit to mother of 22.70/28.33/3.446 billion yuan, corresponding EPS of 1.33/1.66/2.02 yuan, corresponding to the current stock price PE of 10.6/8.5/7.0 times. In the future, Higashiyama Precision Card A customers will receive steady growth. At the same time, T customers will be deeply involved in laying out NEV tracks, opening up strategic opportunities in the second growth curve, and maintaining the “Highly Recommended” rating.
Risk warning: Customer demand falls short of expectations, peer competition intensifies, and asset consolidation falls short of expectations.