Incidents:
The company released its 2023 annual report, achieving full-year revenue of 61,213 billion yuan, a year-on-year increase of 5.40%; realized net profit of 1,181 billion yuan, a year-on-year decrease of 19.00%; and realized net profit without deduction of 1,127 billion yuan, a year-on-year decrease of 28.58%. Among them, in the 2023Q4 single quarter, the company achieved revenue of 16.801 billion yuan, a year-on-year increase of 5.05%, and net profit to mother - 918 million yuan, an increase in year-on-year losses.
The company released its 2024 quarterly report. In 24Q1, it achieved revenue of 16.247 billion yuan, a year-on-year increase of 12.62%; realized net profit to mother of 143 million yuan, a year-on-year decrease of 68.82%.
Semiconductor business: Buck the trend and expand R&D investment to accumulate potential for subsequent growth in 2023. Affected by factors such as the global macroeconomy, semiconductor demand is still weak. The company's semiconductor business achieved 15.226 billion yuan, a year-on-year decrease of 4.85%; realized net profit of 2,426 billion yuan, a year-on-year decrease of 35.29%; and achieved gross profit margin of 38.59%, a year-on-year decrease of 4.07 pcts.
2024Q1, the company's semiconductor business achieved revenue of 3.42 billion yuan and net profit of 530 million yuan. In 2023, the automotive sector further increased its share of revenue from the company's semiconductor business, reaching 62.8%.
In the era of gasoline cars, the average global automobile and bicycle application company has about 400 chips. In current cases where electric vehicles already have customers, the maximum number of bicycles used is close to 1,000. With the trend of intelligent electrification and the continuous expansion of product numbers, the company's automotive semiconductor business is expected to continue to grow.
The company's semiconductor business is based on strong cash flow from traditional product lines and bucked the trend to expand investment in new product R&D. In 2023, R&D investment reached 1,634 billion yuan, an increase of 37.20% over the previous year, accounting for 10.73% of sales. On the basis of iterative upgrades of existing products, the company continues to develop new products such as high-power discrete devices (IGBT, SiC, and GaN) and modules, analog IC combinations, power management ICs, and signal conditioning ICs to meet the growing market demand for high-performance, high-power products, and continue to provide a driving force for future business growth with high-ASP products.
Product integration business: goodwill impairment and asset disposal are a drag, and the laptop business continues to grow for specific customers
In 2023, the company achieved product integration business revenue of 44.315 billion yuan, a year-on-year increase of 11.99%, gross margin of 8.37%, and net loss of 447 million yuan. With 2024Q1, the company achieved product integration business revenue of 12.42 billion yuan, gross profit margin of 3.0%, and net loss of 350 million yuan. The decline in the profitability of the company's business is mainly due to 1) large early investment in mass production of laptop products; 2) the consumer electronics market is sluggish, and the price of new mobile phone product projects is lower; 3) the price increase of some upstream raw materials and labor costs. After deducting the impact of goodwill impairment of 494 million yuan, the product integration business was profitable in 2023, improving year over year. The company announced the termination of the optical module business for specific customers in 23Q4, which will help the company concentrate resources to develop advantageous businesses. If items such as asset impairment and asset disposal losses caused by the termination of this business are added, the actual year-on-year improvement in the company's product integration business in 2023 is quite obvious.
The company invigorates the global market in the product integration business, explores a broad overseas market, and serves leading global brand customers in the fields of mobile phones, tablets, laptops, IoT, home appliances and automotive electronics. In terms of notebooks, the company has become one of the important suppliers for the manufacture of notebook computers for specific overseas customers. Relevant AI PCs produced by the company in cooperation with customers began to be sold globally in early 2024. The business has invested heavily in the early stages. In the future, the company will continue to promote R&D and production capacity support with major overseas customers, and it is expected that it will begin to contribute positive benefits to the company.
Investment advice:
We expect the company's revenue growth rates from 2024 to 2026 to be 11.76%, 17.75%, and 17.89%, respectively, and net profit growth rates of 59.75%, 52.24%, and 27.95%, respectively. As a leader in consumer electronics ODM and power semiconductors, the company continues to invest in R&D to strengthen its competitiveness. Currently, downstream demand is temporarily under pressure due to macroeconomics. As consumer electronics demand bottoms out and recovers, the company's business is expected to return to a growth trajectory in the future, and related product development will be transformed into a new growth engine for the company. We maintain the company's buy-A investment rating. The target price for June is $33.44, which is equivalent to a dynamic price-earnings ratio of 22.00x in 2024.
Risk warning: Consumer electronics demand recovery falls short of expectations, fluctuating raw material costs, and risk of exchange rate fluctuations.