2023 and 1Q24 results are in line with our expectations
Zhuo Shengwei announced 2023 results: the company achieved revenue of 4.378 billion yuan in 2023, up 19% year on year; gross margin was 46.4%, down 6.5 percentage points year on year; realized net profit to mother of 1,122 billion yuan, up 5% year on year, falling within the previous forecast range of the company's performance, which is in line with our and market expectations.
At the same time, it revealed 1Q24's single-quarter results: the company achieved revenue of 1,190 billion yuan, up 67% year-on-year/9% month-on-month; gross margin for the single quarter was 42.8%, which was basically flat month-on-month; realized net profit to mother of 198 million yuan, up 70% year-on-year/35% month-on-month, in line with our and market expectations.
Looking back at 2023, we believe that the company is steadily implementing the RF platform-based long-term strategy, and at the same time, the industry cycle bottom-up signal is gradually clear: 1) Looking at the revenue structure, the modularization trend is clear. In 2023, the company's share of high-end module sales increased from 30% in the previous year to 36% in 2023, and the product line was gradually enriched. Various types of transmission and receiver modules, including DiFEM, L-diFEM, GPS modules, LFEM, LNA BANK, and L-PAMIF, were shipped in batches; 2) Focus filters were produced in-house, and the Cisco production line progressed as scheduled. According to the company's 2023 annual report, the company's 6-inch filter production line has actually shipped more than 8,000 pieces/month, while the 12-inch IPD platform is in the R&D to mass production transformation stage. We are optimistic that the continued growth of Xinzhuo's production line will drive the continuous improvement of the company's overall competitiveness; 3) Inventory levels are gradually stabilizing, and the signal from the bottom of the industry is clear. The company's 1Q24 inventory was 1.8 billion yuan, a slight increase over 4Q23. We believe it is mainly for preparing materials for the company's regular supply chain. The company's inventory level has gradually stabilized since 2H23, and the inventory level is expected to fluctuate at the same frequency as industry demand in 2024.
Development trends
The RF front-end platform-based layout is leading, and I am optimistic that the company's competitiveness will continue to improve. We saw that in 2023, the SAW filter process development platform for the company's 6-inch production line was completed, and MAXSAW products were highly recognized by customers. At the same time, the company integrated L-PAMIF, LFEM and other related module products for self-produced IPD filters, which have been verified by many clients, and the overall Xinzuo production line is progressing smoothly. Looking forward to the future, we believe that the 6-inch and 12-inch Xinzhuo production lines will continue to help the company complete full coverage of RF product categories through a variety of characteristic processes. It is worth looking forward to Zhuosheng Wei becoming a leading RF platform enterprise in mainland China.
Profit forecasting and valuation
Zhuo Shengwei is currently trading at 32.0 times 2024 and 26.1 times 2025 price-earnings ratio. Considering that the fixed amount of Xinzhuo production lines will increase in 2024-2025, which is expected to have a certain depreciation impact, we have carefully lowered the company's 2024/2025 net profit forecast by 9%/19% to 15.5/1.89 billion yuan. We maintain an outperforming industry rating. Considering that Zhuo Shengwei is still steadily implementing its platform-based strategy, we are optimistic about the company's long-term competitiveness and prudently lowered the target price by 15% to 128.0 yuan, which corresponds to 44.2 times the 2024 price-earnings ratio/36.1 times the 2025 price-earnings ratio, with 38.1% upside compared to the current stock price.
risks
Demand for smartphone terminals fell short of expectations; gross margins fell further; and the introduction of new products fell short of expectations.