The 2023 results were in line with our expectations, and the 1Q24 results fell short of our expectations
The company announced its 2023 and 1Q24 results: 1) In 2023, it achieved operating income of 20.073 billion yuan, -3.90% year over year; net profit to mother was 1.37 billion yuan, or -33.89% year on year. It is proposed to pay a cash dividend of 8.5 yuan for every 10 shares, corresponding to a cash dividend rate of 43.2%. 2) Corresponding to 4Q23 revenue of 4.789 billion yuan, -3.11% year-on-year; net profit to mother was 309 million yuan, or -35.67% year-on-year. 3) 1Q24 revenue of 4.495 billion yuan, +19.64% year-on-year; net profit to mother was 178 million yuan, -37.18% year-on-year. 4) The company's 2023 results are in line with previous performance reports and our expectations. The 1Q24 performance fell short of our expectations. Mainly due to weak demand in the interactive screen business and increased competition, profits are still clearly under pressure.
The domestic interactive tablet business is still under pressure, and overseas business has clearly recovered. 1) Domestic demand for interactive tablets is still weak in 2023, and competition in the education market is intensifying. The company's domestic education/enterprise service business revenue in 2023 was 55/ 16 billion yuan, respectively, -9%/+2%. We estimate that 1Q24 shipments have recovered, but revenue is still under pressure due to falling average prices; the company's leading position in the domestic market is stable, with Shivo and MAXHUB ranking first in the industry, with shares of +2ppt/+1ppt to 50%/29%, respectively. 2) Affected by the decline in downstream TV customer shipments, the traditional main LCD board revenue in 2023 was -16%, but the household appliances business continued to expand new customers, with revenue exceeding 1 billion yuan for the first time, or +61% over the same period. We estimate that 1Q24 will continue to have a good growth trend. 3) Since 2H23, overseas markets have gone beyond the inventory cycle. In 2023, revenue from overseas interactive tablets and other terminal products was 3.7 billion yuan, -1.6% year-on-year, of which 1H23/2H23 were -35%/+40%, respectively. We estimate that 1Q24 will maintain the rapid growth trend of 2H23.
Financial analysis: 1) In 2023, the cost of panels and other raw materials continued to rise, and competition in the superimposed education business increased, causing the company's profitability to be damaged in the second half of the year. The gross margin of 1H23/2H23 interactive tablets was 38%/28%, respectively; due to cost increases and the share of overseas business with low gross margin, the overall gross margin of 2H23/1Q24 was 24%/22%, year-on-year, 4.2/-7.2ppt. 2) The company's expense control in 1Q24 was relatively stable, and the net profit margin was -3.6ppt to 4% year-on-year under the influence of gross margin. 3) The 1Q24 company's net operating cash outflow was 500 million yuan, mainly due to strategic stocking of low-priced panels.
Development trends
In terms of overseas business, with the increase in the number of ODM customers and orders, the accelerated expansion of our own brands, and the gradual implementation of cooperation with Microsoft, Intel, etc., we expect subsequent overseas business to continue the growth trend since 2H23. Furthermore, in recent years, the company has stepped up efforts to develop new businesses such as power electronics, computing equipment, and robotics, and we expect it to continue to contribute to business growth.
Profit forecasting and valuation
As domestic demand for interactive tablets remains to be seen and cost pressure is still ongoing, we lowered our 2024/2025 net profit by 13%/15% to 1,379/1,571 billion yuan. The current stock price corresponds to 15.8x/13.9x2024/2025 price-earnings ratio. Maintaining an outperforming industry rating, the target price was lowered by 12% to 39.50 yuan at the same time, corresponding to 20.1x/17.6x 2024/2025 price-earnings ratio, with 27% upward space.
risks
Market competition increases risk; risk of overseas expansion falling short of expectations; risk of fluctuating raw material prices.