Incident: On April 29, the company released its 2023 annual report, achieving annual revenue of 3.57 billion yuan, YoY +3.1%; net profit to mother of 610 million yuan, YoY +16.5%. At the same time, the 2024 quarterly report was released. 1Q24 achieved revenue of 690 million yuan, YoY -0.6%; net profit to mother of 121 million yuan, YoY +4.2%. The performance was in line with market expectations. The company actively carries out technology research and market development to ensure the production and delivery of products.
4Q23 net profit to mother increased 31% year over year; net interest rate in '23 was the highest in history. 1) Looking at a single quarter:
4Q23 achieved revenue of 740 million yuan, YoY -7.3%; net profit to mother of 160 million yuan, YoY +31.5%; deducted non-net profit of 160 million yuan, YoY +46.8%. 2) Profitability: In 2023, the company's gross margin increased by 1.6ppt to 32.3% year on year; net margin increased 2.0ppt to 17.0% year on year, the highest level in the same period in history.
T/R components and RF modules grew steadily; gross margin increased 2.7 ppt year over year. In 2023, by product: 1) T/R modules and RF modules: achieved revenue of 3.38 billion yuan, YoY +7.6%, accounting for 95% of total revenue; gross margin increased 2.69ppt to 31.9% year-on-year. GaN RF chips independently developed by the company have been widely used in T/R components. At the same time, it is actively expanding the application field of T/R components. Technology research and product development work has been carried out in both low-orbit satellites and commercial space, and delivery of various products has begun. 2) RF chips: achieved revenue of 130 million yuan, YoY -53.0%; gross margin decreased 9.07ppt to 33.5% year over year; 3) Other chips: achieved revenue of 50 million yuan, YoY -7.1%; gross margin decreased 0.92ppt to 57.1% year over year.
In the field of mobile communication base stations, the company's GaN RF modules are mainly used in 4G and 5G base station equipment, and 6G mobile communication applications are deployed. It is one of the few companies with the ability to supply GaN RF modules in batches worldwide. In the field of mobile communication terminals, the company has developed and completed RF amplification chip products such as WiFi and mobile phone PA. The performance has reached the advanced level in China, and it is also developing new products.
Continued promotion of various R&D projects; net operating cash flow was positive year over year in '23. The cost ratio increased by 0.6ppt to 13.1% year-on-year during the 2023 period: 1) the sales expense ratio decreased by 0.02ppt to 0.3% year over year; 2) the management expense ratio increased 1.2ppt to 3.6% year over year; 3) the financial expense ratio was -0.6%, compared to -0.1% in the same period last year; 4) the R&D expense ratio decreased by 0.1 ppt to 9.9% year over year, and R&D expenses increased 1.9% year over year to 350 million yuan. As of the end of 1Q24, the company: 1) accounts receivable and notes were $3.31 billion, up 7.6% from the beginning of the year; 2) prepayments of $0.1 billion, up 9.4% from the beginning of the year; 3) inventory of $4.7 billion, a decrease of 23.1% from the beginning of the year; 4) contract liabilities were $0.2 billion, up 341.3% from the beginning of the year. Net cash flow from operating activities was $840 million in 2023 and -$180 million in 2022.
Investment advice: The company is a leading domestic enterprise that can supply active phased array T/R components and serialized RF integrated circuit products in batches. With the development of phased array technology, the evolution of next-generation mobile communication technology, and technological innovations such as satellite communication and low-altitude economy, the company's core business will usher in rapid growth. We expect the company's net profit from 2024 to 2026 to be 717 million yuan, 889 million yuan, and 1,064 million yuan, respectively. The current stock price corresponding to 2024-2026 PE is 41x/34x/28x, respectively. We maintain a “Recommended” rating based on the company's technological leadership in the industry and its business layout in new fields.
Risk warning: downstream demand is slowing down, new product development falls short of expectations, project construction falls short of expectations, etc.