Incident: On April 25, 2024, MeiGe Intelligence released its 2023 annual report and 2024 quarterly report. In the full year of 2023, the company achieved operating income of 21.47 billion yuan, -6.88% year on year, and realized net profit of 65 million yuan, or -49.54% year on year; in the first quarter of 2024, the company achieved operating income of 575 million yuan, +29.65% year over year, and realized net profit of 6.4669 million yuan, or -64.33% year over year.
The company's revenue has recovered significantly since 2023Q4, and profit levels are under pressure in the short term. According to the company's 2023 annual report, 2023Q4 achieved revenue of 588 million yuan, +16.08% year-on-year, while 2024Q1 achieved revenue of 575 million yuan, +29.65% year-on-year. The company's revenue trend continues to improve. We believe it is mainly due to the acceleration of overseas revenue growth and the return of domestic revenue to a growth trajectory. From an industry perspective, demand is picking up in the three major fields of intelligent connected vehicles, FWA, and IoT. Among them, demand from overseas customers is even stronger for FWA and IoT. The gross profit margin of the 2024Q1 company was 15.69%. The gross margin for Q4 in '23 was 18.90%, down 3.21 percentage points from month to month. This is mainly due to the centralized shipment of some products with low gross profit levels during the reporting period, which gradually lowered the overall gross margin level. At the same time, shipments of products related to intelligent connected vehicles increased, and gross margin decreased compared to the same period last year.
Demand for the Internet of Things is strong, and 5G+AI accelerates digital transformation. According to the “2023 Communications Industry Statistics Bulletin” issued by the Ministry of Industry and Information Technology in January 2024, the number of cellular IoT users in China is growing at an accelerated pace; according to the “2023 Communications Industry Statistics Bulletin”, “IoT terminal connections account for nearly 60%. By the end of 2023, the total number of mobile network terminal connections in China reached 4,059 billion, of which the number of cellular IoT terminal users reached 2,332 million, accounting for 57.5% of the number of mobile terminal connections, an increase of 26.4% over the previous year, a net increase of 488 million this year, and is still in a stage of rapid development. At the same time, the new network technology represented by 5G has opened a new era of the Internet of Everything, revolutionized device access and information transmission capabilities, and promoted the rapid growth of edge traffic, especially industry traffic. The demand for massive data storage, processing, calculation, and analysis has increased the investment needs of enterprises in new infrastructure such as data centers, cloud computing, and artificial intelligence. According to Grand View Research data, the global 5G IoT market will grow at a CAGR of 50.2% in 2023-2030.
Breakthroughs continue in the field of automotive products, and servers continue to expand. In the automotive sector, companies have launched a variety of 5G smart module products, which continuously support multiple customers and models to achieve various intelligent functions such as high-speed 5G networks, deep Android system customization, one-core multi-screen, DMS, 360-degree surround view, accurate sound zone positioning, and continuous voice recognition; in the cloud server field, the company's high computing power modules match the requirements of server operation scenarios in terms of software and hardware design, based on strong computing power, low power consumption, and customized solutions unique to the company. It has good applications in cloud gaming, digital people, etc. The underlying ARM architecture also brings unique advantages for application in the Android software ecosystem.
Investment advice: We are firmly optimistic about the future development of the IoT industry. At the same time, we also believe that as a leading global enterprise in the field of IoT modules, MeiG Intelligence can rely on its intelligent product advantages to benefit first under the wave of artificial intelligence development. We expect the company's revenue in 2024-2026 to reach 2.80 billion yuan, 3.483 billion yuan, and 4.318 billion yuan, respectively, and net profit to mother is expected to reach 178 million yuan, 211 million yuan, and 263 million yuan respectively, corresponding to PE multiples of 31x/26x/21x. Maintain a “Recommended” rating.
Risk warning: The boom in the IoT industry falls short of expectations; industry competition intensifies.