Incidents:
On April 22, Precision Electronics released its 2023 annual report and 2024 quarterly report: achieved revenue of 2,429 billion yuan in 2023, a year-on-year decrease of 11.03%; realized net profit of 150 million yuan, a year-on-year decrease of 44.79%; realized net profit without return to mother of 0.3 million yuan, a year-on-year decrease of 72.83%. In 2024Q1, revenue of 418 million yuan was achieved, a year-on-year decrease of 30.50%; net profit attributable to mother was -0.16 billion yuan, a year-on-year decrease of 234.11%; realized net profit deducted from non-mother was -024 million yuan, compared to 0.1 billion yuan in the same period last year.
Investment highlights:
Ongoing orders are sufficient, and the semiconductor business continues to grow rapidly. The display business achieved revenue of 2,429 billion yuan in 2023, a year-on-year decrease of 11.03%. The first reason was the impact of factors such as the industry cycle and weak market demand. The second reason was that the company voluntarily abandoned some products with fierce competition and low gross profit; the semiconductor business achieved revenue of 395 million yuan, an increase of 116.02% year on year. As product breakthroughs and customer development progressed smoothly, the semiconductor business continued to grow rapidly; the new energy business achieved revenue of 241 million yuan, a decrease of 29.74% year on year. Major customers experienced the impact of the overall slowdown in revenue. As of the disclosure date of the 2023 annual report (2024/4/22), the total number of orders in the company was about 3,536 billion yuan, which showed that the current business orders were about 1,248 billion yuan, the semiconductor business was about 1,602 million yuan, and the new energy business was about 686 million yuan. The company's three major businesses had plenty of orders in hand, and semiconductors and new energy have become important supports for business performance.
Gross margin improved significantly in 2023, and R&D investment continued to increase. In 2023, the company's gross margin was 48.95%, up 4.56 pcts year on year, and the net profit margin was 6.18%, down 3.78 pcts year on year; the gross margin of the 2024Q1 company was 47.01%, up 1.66 pcts year on year, and the net profit margin to mother was -3.81%, down 5.79 pct year on year. By business, in 2023, the gross margin of the business was 49.72%, up 4.26pct; the gross margin of the semiconductor business was 52.83%, up 1.69pct year on year; and the gross margin of the new energy business was 35.55%, up 4.18pct year on year.
The company optimized the product structure and strengthened cost control, and the profitability of the three major businesses improved markedly.
In 2023, R&D investment was 660 million yuan, an increase of 11.92% over the previous year. The company continues to increase investment in R&D, new product development is expected to accelerate, and core competitiveness is expected to be further strengthened.
Profit forecast and investment rating We expect the company to achieve revenue of 2,996, 37.47, and 4.646 billion yuan in 2024-2026, and achieve net profit of 2.78, 4.05, and 531 million yuan. The current price is 60, 41, and 31 times PE, respectively. The company is a leading domestic flat panel display testing equipment company. Semiconductor testing equipment is being deployed at an accelerated pace, covered for the first time, and given a “buy” rating.
Risks suggest that the recovery of the flat panel display and semiconductor industry falls short of expectations; new product development progress falls short of expectations; risk of product technology iteration; risk of domestic replacement of semiconductor equipment falling short of expectations; increased industry competition; risk of production capacity expansion falling short of expectations; risk of high R&D investment not being converted into revenue in a timely manner; and risk of falling gross margin.