Communication Holdings released its 2023 annual report on April 23 and its report for the first quarter of 2024 on April 25. In 2023, the company achieved revenue of 62.295 billion yuan, a year-on-year increase of 33.69%; realized net profit of 5.537 billion yuan, an increase of 122.93% over the previous year; realized net profit without deduction of 5.134 billion yuan, an increase of 131.61% over the previous year.
Looking at a single quarter, 2023Q4 achieved revenue of 19.273 billion yuan, up 82.44% year on year and 7.11% month on month; realized net profit of 1,653 billion yuan, up 632.29% year on year; realized net profit deducted from non-return to mother of 1,625 billion yuan, up 827.73% year on year; net profit to mother and net profit without return to mother both declined slightly from month to month.
2024Q1 achieved revenue of 17.443 billion yuan, an increase of 88.10% year on year; realized net profit of 1,626 billion yuan, an increase of 210.30% year on year; net profit after deducting non-return to mother was 1,354 billion yuan, an increase of 342.59% year on year.
Investment highlights:
Revenue from the mobile phone business increased by nearly 35% year-on-year in 2023, and shipments and market share in emerging markets continued to rise. In 2023, the company's mobile phone business continued to explore emerging markets such as Africa, South Asia, Southeast Asia, the Middle East and Latin America. The annual mobile phone business achieved revenue of 57.348 billion yuan, a year-on-year increase of 34.88%, a gross profit margin of 24.18%, an increase of 3.57 pcts year-on-year, and shipments reached about 194 million units, an increase of about 24% year on year. According to IDC, the company's share of the global mobile phone market in 2023 was 14.0%, an increase of 2.3 pct over the previous year, ranking third among global mobile phone brand manufacturers.
Among them, smart phones had an 8.1% share of the global smart phone market, ranking fifth. By market, in 2023, the company had a share of over 40% of the smart phone market in Africa, ranking first; in Pakistan, with a smartphone share of over 40%, ranking first; in Bangladesh, the smart phone share of over 30%, ranking first; and India's smart phone market share of 8.2%, ranking sixth.
By promoting the expansion of category business+building a mobile internet ecosystem, the company's brand advantage in the African market continues to increase. The company has deep insight into local users, increased research and development of localized products, and expanded retail layout to achieve channel construction and coverage for offline brand specialty stores, specialty stores, and new business formats. In 2023, taking advantage of its dominant position in the African market, the company developed an offline model suitable for African user usage scenarios through product technology innovation and localized operation, and carried out commercial cooperation with Africa's leading music streaming platform Boomplay, the leading African information streaming and content aggregation platform Scooper, and Phoenix, a comprehensive content distribution application to develop localization functions for users in the African market. It was well recognized by African users and was widely influenced by brands in the African market, and is known as the “King of Africa” in the industry.
The company's three-level R&D system continues to mature and maintain a leading position in the market. The company invested 2,256 billion yuan in R&D in 2023, an increase of 8.56% over the previous year. Relying on a three-level R&D system for basic research, technology research and product development, the company continues to create differentiated local user value and maintains a leading edge in the four core technology fields. In the field of dark-skin photography technology, the company released Universal Tone multi-skin imaging technology to solve the needs of different skin tones and aesthetic individualized images in many regions in emerging markets, and issued international standards in the field of mobile terminal computational photography. In the field of application innovation of new hardware materials, the company develops a variety of new low-carbon environmentally friendly materials, incorporates the concept of green development into daily management, and provides better environmentally friendly products for users in emerging markets. In the field of big data user behavior analysis, under the premise of complying with local laws and regulations and fully protecting user privacy, the company uses big data to measure product and service problems and changes in user needs, continuously optimize product design and development, and continuously improve user experience and satisfaction. In the field of OS systems and mobile Internet services, the company uses large model technology, device interconnection agreements, etc. to combine user needs in the localized market and release TECNO AI to enhance users' mobile experience with smart devices.
Profit forecast and investment rating: The company is one of the few outstanding overseas brands in China. Based on the competitive advantage the company has established, we adjusted the profit forecast. The company is expected to achieve revenue of 777.96, 905.34, and 102.809 billion yuan in 2024-2026, and achieve net profit of 68.46, 79.32, and 9.074 billion yuan. The corresponding PE is 17X/15X/13X, respectively. Considering the current business pace and valuation level, we maintain a “buy” rating.
Risk warning: Emerging market development falls short of expectations, risk of downstream demand falling short of expectations, risk of rising raw material costs, risk of deteriorating competitive landscape, risk of overseas operation management risk.