Media business under pressure in '23, revenue is expected to recover in '24, maintaining a “buy” rating

Danghong Technology released its annual report. In 2023, it achieved revenue of 333 million yuan (yoy +0.36%), net profit of 138 million yuan (-99 million yuan in 22), and deducted non-net profit of 140 million yuan (-102 million yuan in 22).

Among them, Q4 achieved revenue of 119 million yuan (yoy +51.58%) and net profit of 42.0327 million yuan (22Q4 was -571435 million yuan). The company's revenue growth rate in '23 was slow, mainly affected by pressure from the media business. Pan-safety and smart cockpit businesses all achieved relatively rapid growth. Considering the slow recovery of the media business, the revenue forecast is estimated to be 422/574/780 million yuan (24-25 years ago), respectively. Referring to the average valuation (Wind) of 24E 8.5x PS, the company was given 24E 8.5x PS, with a target price of 31.93 yuan (previous value was 41.72 yuan), maintaining the “buy” rating.

The gross margin was +7.40 pct year on year, and the overall gross margin of the company to strengthen R&D and enhance product competitiveness was 35.26% in 23, up 7.92 pct year on year. The gross margin optimization was mainly affected by the decline in the share of low-margin overseas businesses and the increase in the share of high-margin intelligent connected vehicle businesses. By business, media and culture business revenue was 255 million yuan (yoy -16.10%), gross profit margin of 30.41% (yoy+3.01pct); pan-security business revenue of 52 million yuan (yoy +75.84%), gross profit margin 35.19% (yoy+11.22pct); intelligent connected vehicle business revenue of 0.24 billion yuan (yoy +2,225.74%), gross profit margin 78.80% (yoy -21.20pct). The company's 23-year sales/management/R&D expenses were 11.21%/13.66%/42.86%, respectively, +3.18pct/+4.93pct/+7.20pct. The company has been expanding R&D investment in 23 years, actively developing new technology directions such as AIGC, and the competitiveness of the company's products is expected to continue to be optimized.

Pan-safety accelerates industry expansion, and smart cockpits are expected to continue to expand

The company's pan-security business is gradually reducing the proportion of traditional integration projects. Currently, it mainly lays out 5G edge computing terminals and digital government. With video sensing, compression, and AI capabilities as the core, the company actively promotes the implementation of 5G edge computing video compression terminal products in the industry. Over 23 years, it has accelerated coverage of various industries such as satellite communications, rail transit, coal, towers, power grids, electricity, environmental protection, railways, ocean shipping, etc., and is optimistic about subsequent industry demand growth. The company's intelligent connected vehicle business is progressing smoothly, and cooperation with domestic and foreign car companies such as BYD, Geely, Mercedes-Benz, Porsche, NIO, and SAIC Motor is expected to continue growing in 24 years.

Q1 Revenue growth is accelerating, and we are optimistic about revenue recovery throughout the year

Danghong Technology achieved revenue of 62 million yuan (yoy +19.67%) in 24Q1, net profit of 23.06 million yuan (-18.9 million yuan in 23Q1), and deducted non-net profit of 25.55 million yuan (19.22 million yuan in 23Q1). The increase in net profit and loss due to mother was mainly affected by increased share payment expenses and salary increases for R&D personnel. The overall gross margin for 24Q1 was 34.02%, a year-on-year change of -10.41pct, mainly affected by changes in the revenue structure.

The 24Q1 sales/management/R&D expenses ratio was 13.46%/16.86%/56.06%, respectively, +3.22pct/+0.64pct/-1.57pct. We believe that the company's 24Q1 revenue growth showed signs of recovery. With the three major business segments progressing smoothly, revenue is expected to reach 409 million yuan in 24.

Risk warning: The commercialization of R&D results falls short of expectations, and the expansion of business scenarios falls short of expectations.