Incident: The company released its 2023 and 2024 quarterly reports. In 2023, it achieved revenue of 1,337 million yuan, -26.22% YoY; net profit to mother was 178 million yuan, or -31.67% YoY. 24Q1 achieved revenue of 641 million yuan, +44.37% year over year; net profit to mother of 65 million yuan, +94.10% year over year.
Profit for '23 and 24Q1 slightly exceeded expectations. The sharp year-on-year decline in the company's revenue in '23 was mainly due to weak overall downstream demand due to overseas interest rate hikes, etc., and the company's main customers began inventory adjustments in 23Q1.
The significant year-on-year increase in 24Q1 company's performance was mainly due to the recovery of overseas demand and the entry of customers into the inventory replenishment stage, leading to a year-on-year increase in sales of the original business. At the same time, Hongtong's subsidiary's new project volume provided an increase in performance.
Gross margin increased year-on-year in '23, and expense ratios increased year-on-year for the period. 1) Gross profit margin: The company's gross margin in '23 was 31.81%, +3.22pct year-on-year. The year-on-year increase in gross margin was mainly due to the continuous increase in the share of the company's high-margin private brand MicroTouch; the superimposed company continued to strengthen supply chain management and production management efficiency. 24Q1 gross margin was 23.84%, -0.81 pct year over year. 2) Period expenses: The cost rate for the 23-year company period was 14.89%, +5.87pct year-on-year. Among them, the sales, management, R&D, and financial expenses ratio was 5.09%, 6.47%, 4.38%, and -1.05%, +1.74, +0.91, +1.19, and -1.05 pct compared to the same period.
Strong overseas demand combined with Hongtong Technology helped accelerate the development of the company's performance. 1) ODM: Actively introduce new customers and increase market share. In addition to developing small and medium-sized customers in 2023, the company successfully secured new global customer targets, and mass production is expected to begin in 24Q4 or 25. 2) MicroTouch: Increase sales channels for independent brands. Through distribution channels, the MicroTouch brand has been successfully applied in various fields such as retail, industrial control, logistics, and kitchen display (Kitchen Display), and is expected to achieve steady growth in the future. 3) Hongtong Technology: The company acquired 60% of Hongtong's shares in September 23, holding a total of 70% of Hongtong's shares. 24Q1 Hongtong Technology officially merged, and the company's business was successfully extended to the field of automotive smart cockpits. With the expansion of Hongtong's automotive projects, the company's performance is expected to accelerate.
Profit forecast: Considering Hongtong's consolidated performance, the net profit for 24-26 is estimated to be 321, 3.65, and 458 million yuan. Based on the valuation of comparable **** companies, it is expected to generate an investment income of about 70 million yuan in 24 (2.2% exit of ITH shares). Maintain a “buy” rating.
Risk warning: Downstream demand recovery falls short of expectations; new business expansion falls short of expectations; raw material prices fluctuate.