Incident Overview
On April 26, the company released its 2023 annual report, achieving full year operating income of 3,861 billion yuan, up 3.62% year on year; net profit to mother of 198 million yuan, up 27.08% year on year; net profit after deducting 149 million yuan, up 6.81% year on year. Gross margin was 22.33%, +0.28pct year on year; net margin was 5.03%, +0.48pct year on year.
On April 26, the company released its report for the first quarter of 2024, achieving operating income of 1,102 billion yuan, up 37.42% year on year, up 2.10% month on month; net profit to mother was 81.1715 million yuan, up 320.81% year on year, down 10.78% month on month. Gross margin was 24.03%, +5.26pct yoy, -3.43pct month-on-month; net margin was 8.04%, +6.59pct yoy, -0.91 pct month-on-month.
Analytical judgment:
24Q1's performance increased significantly year-on-year. The three cornerstone platforms contributed to 24Q1 revenue of 1.102 billion yuan (YoY +37.42%, QoQ +2.10%), net profit to mother of 81 million yuan (YoY +320.81%, QoQ -10.78%), and net profit of 75 million yuan (YoY +627.52%, QoQ -11.38%) in a single quarter. The rapid increase in revenue and profit was mainly due to the recovery in the downstream economy, order growth and continuous improvement in operating rates. The gross profit margin for Q1 in '24 was 24.03%, and the net margin was 8.04%, a significant improvement over the previous year. We think it was mainly due to the scale effect of order growth, which led to marginal improvements in production efficiency.
The trend of lightweight folding screens drives demand for MIM technology
The trend of lightening folding screens has increased the requirements for wear resistance, strength, and weight reduction of hinge parts. The complexity of hinge design has increased, and the proportion of MIM in hinges has increased dramatically. In addition, titanium alloy has attracted attention from consumer electronics because of its superior performance. In '23, Apple introduced titanium alloy into high-end mobile phone frames, and mainstream mobile phone manufacturers such as Xiaomi and Samsung are also in the process of layout. Titanium alloy provides a new market for MIM technology applications. According to the company announcement, in the context of the weight reduction trend, MIM titanium alloy is expected to replace some machined parts, and the aluminum alloy MIM process also has application prospects. The company will respond to customer requirements in real time, set up a folding screen hinge design and assembly department, promote development from parts to components, and increase the stickiness of the MIM product market. In '23, due to the recovery of the downstream consumer electronics industry and the increase in folding machine projects for major customers, the company's revenue rebounded steadily and improved quarterly. It achieved MIM revenue of 1,022 billion yuan throughout the year, and achieved profits in both Q3 and Q4. In Q1 '24, the company's MIM revenue increased by about 171.67% year on year, and with the launch of new products from major customers, the component utilization rate is expected to continue to increase, and the folding machine module line was initially successfully verified, and it will gradually contribute revenue later.
P&S business is growing steadily, and some new products have completed R&D
In '23, the company's P&S business achieved revenue of 1,975 billion yuan, up 8.51% year on year, and gross margin increased to 23.51%; Q1 P&S revenue increased by about 31.05% year on year. The company's P&S technology platform has completed the development of samples of some reducer gears in axial magnetic flux motors. At the same volume, an axial magnetic flux motor can generate a stronger magnetic field than a radial magnetic flux motor. It has the characteristics of light weight, compact structure, high torque density and high power density, and more efficient power performance, and has obvious application advantages in scenarios where size and weight restrictions are required, such as driving motors for new energy vehicles.
The acquisition of shares in Shenzhen Xiaoxiang Electric Company promoted the complementarity of SMC's advantages thanks to high demand for downstream new energy vehicles, photovoltaics, etc. In '23, the company's SMC business achieved revenue of 826 million yuan, an increase of 17.13% over the previous year, and gross margin of 21.08%, the highest revenue in the same period in history. In the future, with the implementation of new production capacity, we believe the SMC business is expected to achieve steady growth. In '23, the company increased its shares in Shenzhen Xiaoxiang Electric Technology by 10.00% through Ningbo Dongmu Guangtai. Up to now, it has held 22.00% of Shenzhen Xiaoxiang Electric Company's shares.
Axial magnetic flux motors can be used in automobile and robot joint motors, and the company's soft magnetic stators used in axial magnetic flux motors have been produced in small batches.
Investment advice
Based on the outlook for new trends in folding screens and demand for new energy vehicles, robots, etc. driving the P&S and SMC business, we adjusted the profit forecast. The company's 2024-2026 operating revenue is 52.18/62.73/7.284 billion yuan (original value of 52.87/6.177 billion yuan, additional 26-year forecast), net profit of 4.04/4.96/599 billion yuan (original value: 3.5/409 million yuan, additional 26-year forecast), EPS is 0.0.865/0.97 yuan (original value) 0.57/0.66 yuan, adding a 26-year forecast). The closing price was 14.17 yuan on April 26, 2024, corresponding PE was 22/18/15 times, maintaining the company's “gain” rating.
Risk warning
Downstream demand falls short of expectations, upstream raw materials fluctuate, and technological development falls short of expectations.