Results for 2023 and 1Q24 fell short of our expectations
The company announced its 2023 and 1Q24 results: in 2023, it achieved revenue of 1.83 billion yuan, +1.6% year on year; net profit to mother of 280 million yuan, -21.5% year on year; net profit without return to mother was 220 million yuan, -14.5% year on year, lower than our expectations, mainly due to rising labor costs, losses of 40.65 million yuan from the Shenzhen project, and 31.89 million yuan in compensation expenses. 1Q24 achieved revenue of 40 billion yuan, -10.3% year over year; net profit of 57.154 million yuan, -3.5% year on year; net profit without return to mother of 475.37 million yuan, -4.2% year on year, lower than expected. We believe the NEV business is under pressure or the main cause.
Development trends
Demand in the consumer electronics industry is weak, putting pressure on the company's 3C business in 2023. In 2023, the company's 3C business achieved revenue of 1.28 billion yuan, down 10.4% year on year, and gross profit down 13.9% year on year. According to Canalys data, total global PC market shipments in 2023 were 247 million units, down 13% year on year. Among them, the PC (excluding tablets) market shipments in mainland China in 2023 was 41.2 million units, a year-on-year decrease of 17%. In the short term, according to Counterpoint Research data, 1Q24 global PC shipments increased 3% year on year, and achieved positive growth for the first time in the past 8 quarters. Among them, Lenovo increased 8% year over year. We believe that the company's 3C business is expected to recover steadily in 2024.
The new energy business continued to grow rapidly in 2023, but profitability declined. In 2023, the company's NEV industry's revenue was 490 million yuan, up 59.2% year on year, and the share of revenue increased from 17% in 2022 to 27% in 2023. The gross profit of the NEV business in 2023 was 664.28 million yuan, down 3.8% year on year; gross profit margin was 13.7%, down 9.0 ppt year on year, and profitability weakened.
The Shenzhen project has an initial break-even balance, and the automation integration business is expected to contribute to profit growth in the future. Looking ahead, we believe that the company's profit is expected to gradually improve. On the one hand, according to the company's annual report, the Shenzhen project has initially achieved break-even by the end of 2023; on the other hand, the company completed the Kunshan Alliance and integrated the original automated integration business with the Kunshan Alliance business into the holding subsidiary ASEAN. We believe that the AMHS industry has high technical barriers and broad market space, and is expected to become an important profit growth point for the company in the future.
Profit forecasting and valuation
Due to the decline in profitability in the NEV business, we basically kept our revenue unchanged in 2024, but lowered our profit by 8.8% to 350 million yuan. At the same time, we introduced profit of 410 million yuan in 2025. We expect the company's profit to grow 24.5%/18.3% year-on-year in 2024/25, respectively. The 2024/25 P/E corresponding to the current stock price is 10.8x/9.1x. Considering the market's reduced risk appetite for small and medium capitalization stocks, we lowered our target price by 20.3% to 21.2 yuan, corresponding to the 2024/25 P/E of 14.0x/11.8x. There is 29.8% upside compared to the current stock price, maintaining the outperforming industry rating.
risks
The electronics industry's business volume fell short of expectations, and automated integration business orders fell short of expectations.