Key points of investment:
Announcement: In 2023, Chunqiu Electronics achieved operating income of 3.257 billion yuan, a year-on-year decrease of 15%; net profit to mother was 0.27 billion yuan, a year-on-year decrease of 83%, slightly lower than expected. In the first quarter of '24, we achieved operating income of 909 million yuan, up 31% year on year, and net profit to mother of 14 million yuan, up 150% year on year.
Overall demand in the PC industry slowed in '23 and rose in '24, affecting the company's shipments and revenue. Since the second half of 2022, global demand has slowed, and the laptop industry has been impacted. Although consumer electronics showed signs of recovery in the second half of '23, looking at the whole year, according to Canalys's latest data, total computer shipments in 2023 were 247 million units, down 12.9% year on year.
In 2023, the company's structural parts business revenue was 2.79 billion yuan, down 13% year on year, accounting for 86%; mold business revenue was 170 million yuan, down 31% year on year, accounting for 5%. According to Canalys, global PC shipments increased 2.9% year-on-year in the first quarter of 2024 to 57 million units.
A new round of product upgrades is imminent, and AI PC may help the company's structural parts business rise sharply in volume and price. Thanks to the popularity of AI functions in the future, according to Counterpoint Research data in April 2024, 2024 is expected to be the first year of AIPC, and 45% of the new PCs shipped will have AI functions. At the same time, AI PC requirements for power consumption and heat dissipation are gradually increasing, and magnesium alloys have excellent thermal conductivity and can be quickly dispersed from heat sources. The value of magnesium alloy is higher than that of plastic, aluminum alloy, etc., and is expected to drive the volume and price of laptop structural parts to rise sharply in the context of the switching cycle.
The automobile business successfully entered mass production, and in-hand orders for automobiles continued to grow steadily over the past five years. The company's automotive business took an important step — the launch of the Xiaomi SU7 in March 2024. Demand for lightweighting is driving technological innovation and increased use of magnesium alloys. Compared with traditional die-casting molding, semi-solid injection technology solves problems such as magnesium alloy die-casting is too fast, causing small pores and shrinkage in castings. It also has safety and environmental protection characteristics. There is no need for high-temperature melting metal or metal liquid transfer, which fundamentally avoids the risk of work accidents, reduces smoke and flames, and has no melting residue. The company has now mastered semi-solid injection technology. It is already a scarce supplier of high-quality magnesium alloys for automobiles in China. The business is developing smoothly. It has been recognized by well-known automotive electronics manufacturers such as Desai Xiwei, Tianma Micro, Intron Optoelectronics, Changchun Fusai, etc., and has established close cooperative relationships with many new energy vehicle manufacturers and their suppliers. The downstream products cover various NEV models such as Xiaomi, NIO, BYD, BMW, Geely, and Volkswagen.
Maintain the 24-25 profit forecast, add a 26-year profit forecast, and maintain the “Overweight” rating. The forecast for net profit attributable to mother for 24.25 years was maintained, and the forecast value for 26 years was increased to 420 million yuan. Corresponding 24-26 PE is 20/12/9X, respectively. Comparable companies (Zhongshi Technology, Feirongda, Changying Precision) had an average PE of 22X in 2024, with room for growth of 12% in spring and autumn. I am optimistic about the company's subsequent growth under an integrated two-wing layout in the consumer electronics and automotive fields, so it maintains an “gain” rating.
Risk warning: the risk that consumer electronics demand will not recover as expected; the risk of major customer dependency and customer concentration; the risk that the penetration rate of magnesium alloy automotive structural parts will not grow as fast as expected.