Key points of investment
Performance Overview: 2023 revenue +1%, net profit -10%; 24Q1 revenue -13%, net profit -4%.
Smartphone competition intensified in 2023, with increased market market+concessionary distribution, and slight pressure on -10% net profit to mother.
Revenue in 2023 was $92.2 billion (+1% year over year, all the following), net profit attributable to mother was $655 million (-10%), and net profit of $572 million (-19%) not attributable to mother. The gross profit margin was 3.1% (-0.11pct) in 2023, and profit declined due to a slight decline in gross margin.
The 24Q1 industry is still in the adjustment period. Revenue fell 13% year on year, but profit decline narrowed, and profits were recovered month-on-month.
24Q1 revenue of 21.65 billion yuan (-13%), net profit attributable to mother 168 million yuan (-4%), after deducting non-return to mother of 154 million yuan (-8%).
Revenue structure: The share of smart distribution fell to 64%, and the share of smart retail with high gross margin increased to 36% 2023 revenue structure: smart distribution 64% (-2.6pct) +smart retail 36% (+2.5pct). Among them, the gross profit margin of smart distribution was 2.9% (+0.2pct), the gross profit margin of smart retail was 3.03% (-0.87pct), the share of smart retail with high gross margin increased, and the business structure was optimized. However, considering the decline in the gross margin of the smart retail business itself, gross margin will still fluctuate somewhat in 2023.
Competition in the industry intensified pressure on the profit side in '23, and improved year-on-year in 24Q1. The net interest rate has now recovered to above 1% in 23 years: gross profit margin of 3.1% (-0.11pct) and net interest rate of 0.8% (-0.06pct). Sales expense ratio 1.58% (flat), management fee ratio 0.3% (+0.01pct).
24Q1: Gross profit margin 3.58% (+0.66pct), net profit margin 1.01% (+0.19pct). Sales expense ratio 1.45% (+0.31pct), management expense ratio 0.34% (+0.02pct).
2023Q1-2024Q1 net interest rates for each quarter were: 0.82%, 0.79%, 1.09%, 0.59%, and 1.01%, respectively. It can be seen that after 23Q4 net interest rates bottomed out, 24Q1 has returned to a more ideal level.
Improve the offline layout and drainage → expand the scale of new retail to help brands develop new markets and continue to improve the offline store network. The company expanded 87 new Apple authorized stores, with a total number of operating and service stores exceeding 3,151; Cool Digital built 29 APR stores, bringing the total number of 174 APR stores; Honor increased the number of customers served by more than 4%; the company's Shifeng Technology added 511 new Samsung retail stores, and the total number of service and management stores exceeded 4,215.
The scale of new retail continues to expand. Apple's 1,142 offline stores were connected to eight mainstream platforms, including Tmall and JD, and online sales increased 120%; Coodoo's sales in e-commerce and private communities increased 44%/141% respectively; Shifeng Technology was the only authorized operator of Samsung's JD Home and Meituan Flash Shopping, and O2O sales also increased by more than 250%; there were nearly 40 e-commerce stores operated by your online platform, including 13 stores with retail sales exceeding 100 million in 23.
Empower brands to explore new markets. The company is Honor's only authorized service provider in Hong Kong, Thailand and Vietnam, providing Honor with a full link of marketing, sales, distribution and after-sales services for new markets. In August '23, Honor's market share in Hong Kong climbed from around 2% at the beginning of the year to 10.8%. Furthermore, the market share in Thailand and Vietnam also achieved effective breakthroughs. The company helped the brand develop new markets and will continue to contribute to increasing performance.
Profit forecasting and valuation
As a leading digital distribution and digital retail service provider in China, Ascend has significant advantages in sales network layout, product operation development, organizational efficiency improvement, and digital renewal support. We expect 24-25 revenue of 933/1002/108.9 billion yuan, an increase of 1.3%/7.3%/8.8%, net profit to mother of 8.09/8.80/960 million yuan, an increase of 23%/9%/9%. The PE corresponding to the current market value is 17/16/15X, respectively, maintaining a “buy” rating.
Risk warning: Sales fall short of expectations, changes in industrial policy, increased competition, etc.