Lower profit forecasts and maintain “buy” ratings
Ziguang Guowei released its quarterly report. 2024Q1 achieved revenue of 1,141 million yuan (yoy -26.16%, qoq -40.68%), net profit of 307 million yuan (yoy -47.44%, qoq -38.62%), and deducted non-net profit of 227 million yuan (yoy -58.25%). Considering the delay in downstream military demand, we lowered the company's special integrated circuit revenue forecast. The company's 2024-2026 EPS is estimated to be 3.46, 4.15, and 4.96 yuan, respectively (previous value of 4.01, 5.07, and 6.19 yuan in 2024-2026). Comparatively, the company's 24 wind unanimously expected the average PE value to be 23 times, giving the company 23 times PE in 24 years, with a target price of 79.58 yuan (previous value of 92.23 yuan), maintaining a “buy” rating.
Downstream demand in the special integrated circuit business is insufficient. According to the company's quarterly report, the company's 24Q1 performance declined year-on-year, mainly due to insufficient downstream demand in the company's special integrated circuit business. The decline in product sales volume and unit prices led to a year-on-year decrease in sales revenue and net profit. The company's comprehensive gross margin for 2024Q1 was 57.67%, -8.98pct year on year, and the net margin was 27.42%, -10.24pct year on year. Profitability declined year on year or was due to a decline in the share of revenue from specialty businesses with high added value. The 2024Q1 company's cost ratio was +5.89pct to 35.50% year over year: 1) the sales expense ratio decreased by 1.21pct to 3.86% year over year; 2) the management expense ratio increased 2.64pct to 7.07% year over year; 3) the R&D expense ratio increased 5.56 pct to 25.60% year over year.
Contract liabilities and inventory declined from the beginning of the year, and operating cash flow decreased year-on-year. At the end of the 2024Q1 period, the company's contract debt was 538 million yuan, a decrease of 30.06% from the beginning of the year. This is mainly due to the fact that some pre-payment orders for the company's smart security chip business at the end of the year 23 were fulfilled in 24Q1, while there was a decrease in advance payment in 24Q1. The company's inventory at the end of the 2024Q1 period was 2,467 billion yuan, down 1.86% from the beginning of the year. The net cash flow from 2024Q1's operating activities was -272 million yuan, which turned negative year on year. This was mainly due to the large advance payments received by the company's smart security chip business during the same period in '23, and the year-on-year decline in sales repayments in 24Q1.
Expand new products to consolidate competitive advantage, and continue to enrich the product spectrum
In 2023, the company's special chip business continued to develop new products. System-level chips represented by special SoPC platform products were widely recognized by users. Fourth-generation products have completed early program promotion and have been applied in many fields; special processor series products such as general MCU, image AI smart chips, and digital signal processor DSP have been developed and selected by users in promotion; in the field of analog products, the company completed a large number of new products in seven directions, including analog to digital converters, isolation devices, high-performance clocks, switching power supplies, linear power supplies, monitoring circuits, and protective devices R & D work, leading domestic product indicators in many product indicators.
The company's product spectrum continues to be rich, and its core competitiveness and customer stickiness continue to improve.
Risk warning: Risk of orders falling short of expectations, risk of falling product prices.