1Q24 results slightly exceeded our previous expectations
Guanghetong released its 2024 quarterly report: the company achieved operating income of 2,123 billion yuan, up 17.11% year on year; realized net profit of 188 million yuan, up 33.78% year on year; net profit after deducting non-return to mother was 174 million yuan, up 27.35% year on year, slightly exceeding our previous expectations. We determine that the main reasons are:
1) Demand for PCs and pan-IoT is recovering at an accelerated pace; 2) Immediate collection and withdrawal of software products and an increase in input tax plus declining taxes contributed to a year-on-year increase of 162.53% in other revenue to $28.25 million.
Development trends
The Internet of Things continues to expand, and the high-quality vertical market continues to grow rapidly. 1Q24's revenue increased 17.11% year-on-year to 2.123 billion yuan. We judge that this is mainly due to the gradual recovery of downstream demand such as PCs and IoT, and that the development momentum of in-vehicle modules is good. According to Counterpoint, 1Q24 global PC shipments achieved positive growth for the first time after 8 consecutive quarters of decline, with a year-on-year increase of 3%. We believe that, driven by the recovery of the PC market and the steady increase in the built-in rate of cellular communication modules, the company is expected to achieve steady growth in the PC communication module business in 2024. Furthermore, according to the company's announcement, the 5G module AN768 launched by the company in 2023 was officially mass-produced and delivered to a domestic new energy brand. The automotive 5G R15 module passed the three mandatory European certifications, and the core cockpit products passed the AEC-Q104 vehicle standard certification. We believe that with the company's customer expansion and rich product matrix, the automotive business is expected to maintain rapid growth momentum. There is strong certainty about the expansion of the number of IoT connections. According to GSMA, the number of cellular IoT connections will be 3.5 billion in 2023, and is expected to reach 5.8 billion by 2030. We are optimistic that the company will benefit in the long term by relying on continuous technology accumulation in the field of communication modules and the leading layout of the high-quality vertical market.
Improve profitability and continue to invest in R&D to enrich the product matrix. 1Q24's net profit margin increased 1.10pct to 8.8% year on year. Among them, due to fluctuations in the product structure in the single quarter, 1Q24 gross margin increased 0.64pct to 21.5% year over year; the cost ratio remained stable, and 1Q24's sales/management/R&D expenses ratio was -0.10% /+0.15pct/+0.36pct to 2.5%/2.0%/8.7% year-on-year. We have seen that through continuous R&D investment, the company deployed intelligent modules/5G/in-vehicle modules. During MWC 2024, the company released the LTE smart module SC208 and the REDCAP module FM330 series based on the MediaTek T300 platform; during the 2024 German embedded exhibition, the company released a series of Linux edge AI solutions based on various smart modules. We believe that the company's continuous enrichment of product layouts will help seize the long-term development dividends of the IoT industry.
Profit forecasting and valuation
We have basically kept the profit forecast of 2024/2025 net profit of 714 million yuan/882 million yuan unchanged. The current stock price corresponds to 2024/2025 17.4x/14.1 times P/E. Maintaining an outperforming industry rating and target price of 24.03 yuan, corresponding to 25.8 times/20.9 times P/E in 2024/2025, there is 48% upside compared to the current stock price.
risks
The Internet of Things penetration rate fell short of expectations, laptop cellular module shipments fell short of expectations, and the automotive front-loading business fell short of expectations.