Incidents:
The company released its 2023 annual report and 2024 quarterly report. In 2023, the company's annual revenue was 7.716 billion yuan, YOY +36.7%, net profit to mother was 564 million yuan, YOY +54.6%; net profit after deduction was 536 million yuan, YOY +69.5%.
In 2024, Q1 revenue was 2.12 billion yuan, +17.1% year-on-year; net profit to mother was 188 million yuan, +33.8% year-on-year, after deducting non-net profit of 174 million yuan, +27.4% year-on-year. The performance was in line with expectations.
Comment:
The steady development of various businesses in 2023 also led to rapid growth in performance: the company's automotive and FWA business growth rates were high; the company's subsidiary Guangtong Yuanchi+Ruiling Wireless had the world's first mass production and delivery of the AN768 automotive 5G module based on the MT2735 platform; in addition, competitive pressure on the PC industry slowed, and the industry recovered from 2022; and the revenue and net interest rate of the subsidiary Ruiling Wireless also showed high growth, driving the company's performance against the trend during the downturn of the Internet of Things boom.
The PC/IoT recovery trend was remarkable in the first quarter of 2024, and profitability continued to increase: Among the company's two major businesses, the PC business is expected to grow faster year-on-year due to the lower base of the same period last year. We believe that following up on the first wave of switching after the pandemic, combined with AIPC to drive the company's performance; in terms of the Internet of Things, according to Counterpoint, due to reduced demand, global IoT module shipments declined for the first time in 2023, with a 2% year-on-year decline. It is expected that by 2024, as inventory levels normalize and smart meters, POS, Demand in the automotive and other fields is increasing, and the module market is expected to resume growth in the second half of the year. As an industry leader, the company's related business is expected to resume high growth this year. In terms of profitability, benefiting from the recovery of the industry, the company's gross profit margin for the first quarter was 21.52%, up 0.64 percentage points from the previous year; the sales/management/R&D expenses ratio for the first quarter was 2.53%/2.03%/8.73%, which was basically the same as the previous year, driving the net interest rate for the first quarter to increase by 1.14 percentage points to 8.96%. With the recovery of the company's high-margin PC business and continuous cost reduction and efficiency, there is still room for future improvement in profitability.
The vehicle layout is progressing steadily: The company continues to improve its product matrix through the Ruiling Wireless+Guangtong Yuanchi dual-line layout, and has now achieved mass production on Qualcomm and other platforms. The company continued to win bids for vehicle/gateway-related projects, compounding the previous share advantages of car companies such as BYD, Geely, Great Wall, and Changan, laying the foundation for rapid future growth; on April 25, Guangtong Yuanchi brought a full line of smart vehicle products and customized solutions to the 2024 Beijing Auto Show, and continued to make efforts in the fields of intelligent connectivity, smart cockpit, software solutions, etc., and exhibited a variety of 5G technology-oriented products and connected smart cockpit module products with high market competitiveness.
Edge AI is expected to drive the future development of the Internet of Things, and industry leaders will benefit deeply: edge computing can integrate networks, computing, and storage into a new network architecture and open platform, and can be closely integrated with AI technology to enrich application scenarios and improve the efficiency and reliability of data analysis. The most important carrier of edge computing is the IoT computing power module, and the demand for IoT intelligent computing power modules will increase significantly in the future. The company has developed a variety of intelligent modules with high computing power, which is expected to profoundly benefit from edge AI development opportunities.
Profit forecast: The company's laptop, vehicle, and pan-IoT “troika” go hand in hand. In particular, with Ruiling Wireless's merger and merger of the domestic automotive business, in the future, the Guangtong Yuanchi+Ruiling combination will have the opportunity to enter the top two in the world in the automotive front-end market, driving a rapid increase in performance. We expect the company's net profit for 2024-2026 to be 754/9.47/1,192 million yuan, YOY +33.86/+25.53/ +25.90%, respectively; EPS is 0.99/1.24/1.56 yuan, respectively. The current stock price is 16/13/10 times the P/E for A shares, respectively, maintaining the “buy” proposal.
Risk warning: 1. Market expansion of new products falls short of expectations; 2. Increased market competition has led to a decline in gross margin; 3. Consolidation of acquired assets falls short of expectations.