Key points of investment:
Incident: The company released its 23 annual report & 24 quarterly report, and achieved revenue of 13.861 billion yuan in 23, a year-on-year decrease of 2.59%; net profit to mother was 91 million yuan, a year-on-year decrease of 85.43%. 24Q1 achieved revenue of 3,954 billion yuan, a year-on-year increase of 26.06%; net profit to mother was 55 million yuan, compared to only -135 million yuan in the same period last year.
There was a month-on-month improvement in 23Q4, and profit resumed with year-on-year growth in 24Q1. According to the company's 23 annual report, based on the 23Q4 alone, it achieved revenue of 3.894 billion yuan, an increase of 12.72% over the previous month; net profit to mother was 109 million yuan, an increase of 11.69% over the previous month. The 23 annual report and 24Q1 results are in line with expectations. It is expected that as demand continues to pick up, performance will recover and return to growth.
Demand is picking up, and new vehicle orders worth hundreds of millions of dollars have been added, and a high increase is expected. Downstream demand is gradually recovering, and revenue from vehicle/5G/smart module, ODM, antenna and other businesses can all see a good growth trend. According to the announcement, the company previously received fixed letters from world-renowned auto parts suppliers. The total sales amount for the project life cycle is estimated at US$742 million to US$1,309 million (taking the average value of about 7.5 billion yuan), and the order period is 8 years (2026 to 2033). The contract amount is large, which is expected to drive rapid growth in future performance.
Expense control has paid off. Reducing costs and increasing efficiency, improving project input/output ratio and unit personnel output, 23H2 profitability improved. According to the company's quarterly report for '24, the 24Q1 sales expense ratio was 2.75%, down 0.94 pct year on year; the management cost ratio was 2.43%, down 0.66 pct year on year; the R&D expense ratio was 9.62%, down 4.39 pct year on year, and the three fee control was effectively strengthened.
Continuing to develop product layouts, REDCap and others are progressing smoothly. According to the official website of Yiyuan Communications, the company has successively launched the ultra-low power REDCAP module Rx255G series, the multi-mode satellite communication module BG95-S5, which has entered the engineering sample stage, and the high-performance MCU Bluetooth module HCM511S; the C-V2X product line is rich and has been mass-produced to meet the needs of smart cars and intelligent transportation.
We believe that as a global core manufacturer of IoT modules, the company has broad prospects in multiple businesses such as vehicles/5G/smart modules.
Previously, downstream demand for the Internet of Things fluctuated, and the company's performance was under pressure. Currently, demand is gradually picking up, and performance is expected to gradually recover.
Maintain the 24-25 profit forecast, add a 26-year profit forecast, and maintain the “buy” rating. The estimated net profit for 24-26 is 491/6.13/776 million yuan. Since the profitability of the company and the industry as a whole has fluctuated greatly in recent years, the PE valuation method is not applicable, and the revenue scale can better reflect the size, industrial position, and share of IoT module industry companies compared to profit, so the current stock price (4/25) corresponds to a 24-26 PS of 0.57/0.46/0.37 times (comparable to the company's 24-year average PS of 1.54 times), maintaining a “buy” rating.
Risk warning: competition intensifies; risk of continued tight supply of upstream raw materials and price increases; the growth rate of IoT connections falls short of expectations; and the implementation process of some IoT applications falls short of expectations.