Q1 Revenue grew steadily, and profit declined slightly after deducting non-recurring profit and loss
Higashiyama Precision 1Q24 had revenue of 7.745 billion yuan (YoY: 18.94%; QoQ: -30.54%), net profit of 289 million yuan (YoY: -38.65%; QoQ: -54.21%), net profit after deducting non-return to mother of 261 million yuan, a year-on-year decrease of 6.71%. The year-on-year increase in revenue was mainly due to increased revenue at the chip end and revenue growth in various businesses. The main reasons for the year-on-year decline in net profit include: 1) a high base due to the investment benefits resulting from the merger and acquisition of Suzhou Jingdian in the same period last year; 2) the decline in new production capacity in precision manufacturing, and insufficient utilization rate. Looking ahead to 2024, we are optimistic that: 1) new module board models will be released; 2) precision components have been introduced or will further increase revenue; 3) LED display and other businesses will gradually reverse losses. We are optimistic that the automotive business will increase revenue while improving product structure and increasing profitability. EPS is predicted to be 1.42/1.81/2.31 yuan for 24/25/26. Considering the company's dominant position as a leader in the soft board industry, 18 x 24 year PE (comparable company average value 17.7x) will be given, and a target price of 25.6 yuan will be given to maintain the purchase rating.
1Q24: Profit margins are under pressure due to rising production capacity. The Q1 gross margin/net margin of companies with good cost control was -1.2pp/ -3.5pp to 13.60%/3.73% year-on-year. Profitability declined, mainly due to: 1) increased competition in the fast core board business; 2) the new production capacity of precision manufacturing climbed, and the operating rate was insufficient. The cost ratio of the 1Q24 company was -2.2pp to 7.6% year-on-year. Among them, sales/management/R&D/finance expenses rates were -0.1/-0.3/0.3/-2.1pp to 1.0%/3.4%/3.3%/-0.1% year over year, of which R&D expenses were +31.23%. The company continued to increase R&D efforts around its core business and added some R&D projects. Financial expenses -103.74%, mainly due to current interest income higher than the same period last year, while exchange earnings increased.
2024: Optimistic about module board volume, loss reduction in LED display devices, etc., and growth in precision component production capacity 2024:1) Electronic circuit board business. The soft board business has achieved batch supply of module boards, and we are optimistic about the number of module boards released in 2024. In the field of hard boards, the company is expected to take advantage of the advantages of high-multi-layer and high-density boards to seize opportunities in the new energy industry; 2) LED display devices. Industry inventories are gradually being eliminated, and the company is expected to actively promote loss reduction through strategies such as adjusting the product structure; 3) touch panels and liquid crystal display modules.
We are optimistic that in 2024, our own touch panel business will actively develop new business and new customers, gradually restore profitability, and further increase revenue with chips; 4) precision component products. Yancheng Phase II, Mexico, and Kunshan plants have been put into operation one after another, and they are optimistic that rising production capacity will bring about a recovery in profit margins.
A target price of $25.6 was given, and the buy rating was maintained
We are optimistic that the automobile business will increase revenue while improving product structure and increasing profitability. The company's net profit for 24/25/26 is estimated at 24.3/30.9/3.95 billion yuan. Referring to a comparable company's 2024 Wind unanimously expected average of 17.7 times the PE valuation, considering the company's dominant position as a leader in the soft board industry, 18 times PE was given in 2024, with a target price of 25.6 yuan, maintaining the purchase rating.
Risk warning: Industry competition intensifies; raw material prices fluctuate; production capacity or technology increases slower than expected.