Market competition intensifies, short-term performance is under pressure
China Resources Micro announced 2023&1Q24 results. 2023 revenue of 9.90 billion yuan (yoy: -1.6%), net profit attributable to mother of 1.48 billion yuan (yoy: -43.5%). 1Q24 revenue of 2.12 billion yuan (yoy: -9.8%), gross profit margin of 26.5% (yoy: -8.3pp), net profit to mother of 0.3 billion yuan (yoy: -91.3%). Profitability was under pressure during the reporting period mainly due to increased competition in the industry, and the prices of our own products and OEM all faced significant downward pressure. As a result, we lowered our revenue forecast by 7%/6% for 24/25; lowered our net profit forecast by 10%/7% to RMB 1,417/15.47 billion yuan, and we expect net profit to mother of RMB 1,719 billion in 2026.
We gave the company 2.4 x 2024E PB, which is comparable to the company's average. The premium margin was reduced mainly because the company's product portfolio faced greater price pressure, and the target price was lowered to 41.66 yuan (previous value: 52.32 yuan), maintaining the “buy” rating.
2023 &1Q24 review: Short-term performance is under pressure. Owned & OEM products face price competition. In 2023, the company's products and solutions (power IDM) revenue was 4.67 billion yuan (yoy: -5.6%), gross profit margin 26.62% (yoy: -9.5pp); manufacturing and service (OEM, packaging, mask, etc.) revenue was 5.08 billion yuan (yoy +2.7%, accounting for 51.3%), gross profit margin 37.4% (yoy: -0.2pp).
The market for power-owned products is fiercely competitive, and the decline in gross margin is relatively deeper. 1Q24 China Resources Micro's revenue was 2.12 billion yuan (yoy: -9.8%; qoq: -10.8%), gross profit margin of 26.5% (yoy: -8.3pp; qoq: -2.0pp), net profit to mother of 0.3 billion yuan (yoy: -91.3%; qoq: -92.2%). Short-term performance is under pressure mainly because the company's own power IDM & foundry businesses all face greater price competition. In addition, the 12-inch production line climbs and new product development have increased related expenses.
Looking forward to the future: The 12-inch production line has laid the foundation for the company's long-term development. Looking forward to the future, we believe that the prices of the company's medium- and high-voltage products related to new energy may continue to be under pressure. We have lowered the company's gross margin forecast for 24/25 to 28.5%/27.8%. We are optimistic about the company: 1) OEM business: the BCD process platform continues to be iteratively upgraded, and the 0.11 micron BCD technology platform completes the curing of the process platform; 2) IDM business: 12-inch deep groove process pre-research progresses in an orderly manner, and breakthroughs have been made in the expansion of new products such as IGBT modules, IPM modules, TMBS modules, and MOSFET modules; 3) The 12-inch production line climbs, laying the foundation for the company's long-term development.
Maintain the “buy” rating and lower the target price to 41.66 yuan
Considering the intensification of competition in the industry and the price of our own products and OEM are all facing greater downward pressure, we lowered our 24/25 revenue forecast by 7%/6%; lowered our net profit forecast to mother by 10%/7% to 14.17/1,547 billion yuan. We expect net profit to be worth 1,719 billion yuan in 2026. We gave the company 2.4 x 2024E PB, which is comparable to the company's average. The premium margin was reduced mainly because the company's product portfolio faced greater price pressure, and the target price was lowered to 41.66 yuan (previous value: 52.32 yuan), maintaining the “buy” rating.
Risk warning: Increased industry competition, risk of falling product prices, risk of new technology and product development falling short of expectations.