Matters:
On April 24, 2024, the company released its report for the first quarter of 2024:
In 2024Q1, the company achieved operating income of 6.842 billion yuan, +16.75%/-25.88%; gross profit margin of 12.20%, +0.36pct/month-on-month; net profit to mother of 135 million yuan, +23.01%/-72.79% yoy; net profit without deducted net income of 108 million yuan, +91.33%/-81.30% yoy.
Commentary:
The company insisted on high-quality development and continuous profit, and the first quarter results achieved positive year-on-year growth. The business of some customers increased, capacity utilization increased, and the company's 2024Q1 revenue increased year on year; profitability improved. 2024Q1 gross margin was +0.36 pct to 12.20% year over year, and net profit margin was +0.10 pct to 1.98% year on year.
As downstream demand gradually recovers, the company's capacity utilization rate is expected to continue to increase. Considering the asset-heavy nature of the sealing and testing industry, we believe that the company's performance flexibility is expected to continue to be unleashed under the scale effect. At the same time, the company continues to lay out high-growth product fields, explore fields such as HPC, Chiplet, automotive electronics, etc., and continuously optimize its business structure. As subsequent production capacity is gradually released, the company's long-term growth space is expected to open up.
The company's customer structure and application areas continue to be adjusted, and the sealing and testing leader accelerates transformation to help long-term growth. Looking at the customer structure, more than 70% of the company's revenue in 2023 came from outside mainland China. Customers include major global leaders, and the company continues to benefit from domestic replacement opportunities. In terms of application areas, the company is accelerating its strategic layout from consumer to high value-added markets such as high-performance computing, automotive electronics, storage, and 5G communications. The revenue share of the communications, consumer, computing, industrial, medical, and automotive sectors in 2023 was 43.9%/25.2%/14.2%/8.8%/7.9%, respectively, up to 4.6pct/-4.1pct/-3.2pct/-0.8pct/+3.5pct. As the company's customer structure and application areas continue to be adjusted, related revenue is expected to maintain rapid growth in the future.
The company has comprehensive solutions in fields such as AI and artificial intelligence, and Changdian Shaoxing already has mass production capabilities for various 2.5D Chiplet packaging technologies through listed company platforms and joint ventures. Against the backdrop of Moore's Law slowing down, the value of the packaging process is prominent. In the future, the sealing and testing process may replicate the development path of the foundry process, that is, the size of the advanced packaging market will rapidly increase, and leading technology-leading manufacturers will enjoy great dividends. Company XDFOI? Technological breakthroughs have been made continuously, and it has been applied in the fields of high-performance computing, artificial intelligence, 5G, automotive electronics, etc. Among them, in the field of AI, artificial intelligence/IoT, the company has a full range of solutions. The domestic factory covers most general packaging test types and some high-end packaging types in the packaging industry. The Jiangyin factory can meet customers with one-stop services from mid-channel sealing and testing to system integration and testing. At the same time, the company's joint venture Changdian Shaoxing already has mass production capabilities for advanced wafer-level packaging in integrated circuits.
Investment advice: The industry cycle continues to recover. The company focuses on key application areas, reduces costs and increases efficiency, and achieves month-on-month improvement in profitability. Considering the weak recovery in downstream demand, we lowered the company's net profit forecast for 2024-2026 from 21.00/30.87 billion yuan to 19.51/28.37/37.31 billion yuan, corresponding EPS of 1.09/1.59/2.09 billion yuan. Combined with the company's historical valuation and comparable company valuation, the company was given 30 times PE in 2024, with a target price of 32.7 yuan, maintaining a “strong” rating.
Risk warning: changes in the external trade environment; industry sentiment falls short of expectations; industry competition intensifies