Mobile & in-vehicle CIS will drive both revenue and profit growth in 2023. Vail Co., Ltd. released its 2023 annual report and 2024 quarterly report: In 2023, it achieved revenue of 21.02 billion yuan, and realized net profit of 550 million yuan, -44% year over year, net profit after deducting non-return to mother of 140 million yuan, +44% year on year; gross profit margin of 21.8%, net profit margin 2.6% year on year, and -2.2 pcts year on year. Looking at a single quarter, 23Q4 achieved revenue of 5.94 billion yuan, +26% year-on-month, -5% month-on-month, gross profit margin of 23.0%, -1.6 pcts yoy, and +1.2pcts month-on-month.
We see that the CIS business achieved revenue of 15.54 billion yuan in 2023, +14% year over year, accounting for 74% of total revenue, of which mobile phone CIS revenue was 7.78 billion yuan (50%), with 50MP and above products accounting for more than 60% of revenue. The high-end strategy achieved remarkable results; automobile CIS revenue of 4.55 billion yuan (accounting for 30%), with a rapid increase in market share.
24Q1 revenue grew steadily, and product structure optimization helped significantly improve profitability. Focusing on the first quarter report, 24Q1 achieved revenue of 5.64 billion yuan, +30% year-on-year, net profit of 550 million yuan, +181% year-on-year, net profit of 570 million yuan after deduction of non-return to mother, and +2477% year-on-year. In addition, 24Q1 shares paid a fee of 69 million yuan (-75 million yuan in 23Q1). Excluding this effect, 24Q1 net profit to mother was approximately $620 million, +357% over the same period last year. In terms of profitability, gross profit margin was 27.9%, +3.2pcts year on year, +4.9pcts month-on-month, net profit margin 9.8%, +5.3pcts yoy, +6.7pcts month-on-month. The increase on the revenue side was mainly due to the introduction of high-end mobile phone products and the continued penetration of automotive applications, while the sharp improvement in the profit side was further due to the optimization of the product structure and the impact of cost reduction and fee control.
Inventories have returned to normal levels, and profit constraints have been eliminated. We see that the company's inventory level has declined further from 7.55 billion yuan at the end of 2023Q3 to 6.32 billion yuan at the end of 2023. Although it rose slightly to 6.67 billion yuan by the end of 2024Q1, we believe this is due to seasonal strategic stocking. Compared with the inventory high of 14.11 billion yuan at the end of Q3 2022, the current inventory has been drastically reduced by 53%. We believe that the company's inventory has returned to normal levels. More importantly, the old high-cost products represented by OV64B have basically been sold out, and the gross margins of 23Q2-24Q1 in a single quarter reached 17.3%/21.8%/23.0%/27.9%, respectively, indicating that new low-cost and high-priced products represented by OV50H are improving profit performance at an accelerated pace.
The 50MP product line was rapidly expanded, and a new product cycle has already begun.
1) Large pixel products (1.2um and above): In January 2023, Howell released the first 50MP large pixel product, the OV50H, with a 1/1.28 inch outsole and a single pixel size of 1.2um. Currently, this product has been used in the full range of Xiaomi 14, IQOO 12, and Honor Magic6/Pro main cameras; in March 2024, the OV50K was first equipped with the Honor Magic6 Extreme Edition/RSR Porsche Edition Hawkeye main camera, although the product specifications are basically the same as the OV50H However, as the world's first mobile phone CIS to use automotive-grade LOFIC technology, the ultra-high dynamic range is a 15EV with an ultra-high dynamic range of up to the SLR level. Looking forward to the future, we believe that Howell will release more large pixel products one after another to continue to seize the high-end Android market.
2) 1.0um main market: In February 2021, the first 50MP product OV50A was developed, with a 1/1.55 inch sensor and a single pixel size of 1.0um; in August 2022, an upgraded version of the OV50A OV50E was released, focusing on the 1um mid-range market, and has now been used in Redmi K70/K70 Pro main camera.
3) Small pixel product (0.6um): In June 2023, Howell released its first small pixel product, the OV50D, with a 1/2.88 inch sensor and a single pixel size of 0.6 um. Mass production and shipment of this product began in the third quarter of this year, focusing on the small pixel market for mid-range and low-end models such as secondary cameras and telephoto cameras. Currently, the market is dominated by Samsung JN1, and Howell will further launch the OV50M in the future to compete with Samsung's market position.
In addition to the CIS business, we have also observed highlights in the company's other business areas:
1) Touch and display solutions: Although chip prices fell 15% to 1.25 billion yuan in 2023 due to insufficient demand, the company actively promoted products and developed many new products such as OD6630 and OD6631 smartphone OLED DDIC. Overall shipments increased 65% year over year to 133 million units, and the market share bucked the trend.
2) Simulation solution: High supply chain inventories led to a year-on-year decline of 9% in revenue to 1.15 billion yuan in 2023. Excluding the impact of product line revenue already divested in 2022, revenue in 2023 actually achieved a 13% year-on-year increase. Shipments of discrete devices and consumer analog ICs increased 15%/9% year over year, respectively.
In addition, the company completed the acquisition of Xinlite in 2023, further expanding its simulation business into the automotive market. Automotive analog ICs achieved revenue of 150 million yuan in 2023, accounting for 13%.
Profit forecast and investment suggestions: In summary, we believe that the inventory issue that the market was previously concerned about is no longer a drag on the company's profit. Entering 2024, low-cost and high-priced new products represented by OV50H are accelerating the improvement of the product structure, thereby driving a gradual increase in profitability. Furthermore, the touch, display, and simulation businesses have all bottomed out, so we raised 2024/2025 revenue to 270.1/32.54 billion yuan, an increase of 28.5%/20.5% year-on-year, and forecast revenue of 38.68 billion yuan in 2026, compared with the same period. An increase of 18.9%; at the same time, net profit to mother was maintained at $32.9/5.07 billion yuan in 2024/2025, an increase of 492.7%/53.8% year on year, and it is predicted that net profit to mother will reach 6.54 billion yuan in 2026, an increase of 29.1% year on year.
As a domestic CIS leader, the company's performance inflection point has clearly emerged. A new round of product strength cycles has already started, maintaining a “highly recommended” rating.
Risk warning: downstream demand falls short of expectations; high-end CIS applications fall short of expectations; automotive intelligence is slowing down.