1Q24 results fell slightly short of our expectations
The company announced 1Q24 results: revenue of 151 million yuan, -3.5%/-23.7%; net profit to mother of 6.31 million yuan, -72.8%/-84.2% month-on-month; net profit after deduction of -6.69 million yuan. Non-recurring profit and loss is mainly profit and loss from changes in fair value. Revenue fell short of expectations due to weak demand, and profit fell short of our expectations due to the year-on-year increase in expense ratios during the period.
Development trends
Profits are under pressure due to factors such as insufficient demand, R&D investment, and depreciation accruals. 1Q24 The company's sales/management/R&D expenses rate was 16.6%/14.3%/28.5%, compared to +0.5ppt/+4.8pp/+9.1ppt, and +4.3ppt/+6.4ppt compared to the previous month. The R&D expense ratio increased sharply year on year. While revenue declined slightly year over year, mainly due to weak demand, the company continued to increase investment in R&D, and amounts such as R&D personnel remuneration, material costs, and fixed asset depreciation increased by 41.6% year on year. The management fee rate increased sharply year over year, mainly due to depreciation of the Shanghai subsidiary plant, which has not yet been officially put into use, and depreciation of the Malaysian subsidiary's right to use assets included in management expenses, which led to a 46.1% year-on-year increase.
High-end products continue to be released, and innovation vitality continues unabated. 1Q24's gross margin was 54.8%, compared to +0.6ppt. We think the main reason is the increase in the share of DHO series and DS80000 series high-end products. On April 8, the company released a new modular technology, which can complete product development more efficiently through flexible module configuration and meet the customized needs of customers. We believe that the introduction of modular technology may be a good start for the company to upgrade to a “solution provider”, expanding the market while enhancing competitiveness, and it is expected that related products will be launched in the future.
Release a stock incentive plan to show the company's confidence. On April 29, the company announced the 2024 restricted stock incentive plan. It plans to grant 2.8 million shares, accounting for 1.5125% of the total share capital, including 1.6 million first-class shares, to 80 key employees and others in need of incentives. The incentive plan lifted sales restrictions in two phases, with 50%/50% lifted respectively. The conditions for cancellation were “2024 revenue/net profit increased by no less than 30%/20% year on year”/“2025 revenue/net profit increased by no less than 30%/20% year on year to achieve one”, respectively. We believe it reflects the company's confidence in steady growth in performance.
Profit forecasting and valuation
Due to weak demand and high R&D management expenses, we lowered our 2024/2025 net profit of 10%/15% to 144 million yuan/198 million yuan. The current stock price corresponds to 2024/2025 P/E45x/33x. Maintaining an outperforming industry rating and considering the company's long-term growth potential in high-end oscilloscopes, modular products, quantum computing, etc., we maintained a target price of 47.48 yuan, corresponding to the 2024/2025 P/E 61x/44x, an increase of 35% over the current stock price.
risks
Market demand falls short of expectations, high-end product launches or sales fall short of expectations, market competition intensifies; risk of merger integration, risk of acquisition performance promises not being realized.