Description of the event
On April 22, 2023, Yiyuan Communications released its 23 annual report & 2014 quarterly report: the company achieved revenue of 13.861 billion yuan in 23, down 2.6% year on year; realized net profit of 91 million yuan, down 85.4% year on year; realized deduction of non-net profit of 06 billion yuan, a year-on-year decrease of 98.82%. 24Q1 achieved revenue of 3,954 billion yuan, up 26.1% year-on-year and 1.5% month-on-month; realized net profit of 55 million yuan, turning a year-on-year loss into a profit; realized deducted non-net profit of 51 million yuan, turning a year-on-year loss into a profit.
Incident comments
The upward trend in revenue for the quarter of '23, and increased R&D/management expenses weighed on performance. The company's revenue for 23 years was 13.861 billion yuan, -2.6% year on year; it went to mother 91 million yuan, -85.4% year over year. Looking at Q4 alone, revenue of 3.894 billion yuan was achieved, -4.9% year-on-year, and +12.7% month-on-month. The company's revenue for each quarter showed a continuous positive trend; it achieved a return of 109 million yuan, -41.9% year-on-year, and +11.7% month-on-month. In 2023, the company's net profit was under pressure in the short term. The main reason was that the company invested heavily in R&D and management expenses. The company's R&D and management expenses for the full year of '23 were 1,704/461 million yuan, +20.2%/35.5%, and the cost rates were 11.6%/14.9%, respectively, +2.2pct/+3.1 pct. Significant increases on the cost side put a lot of pressure on performance. Therefore, the company's management adjusted its business strategy in a timely manner, controlled R&D projects more strictly, and carried out multiple rounds of screening of existing projects to improve the input-output ratio of the project; at the same time, the company controlled the number of personnel and management remuneration to increase the unit's personnel output, etc.
24Q1 revenue continued to increase year-on-year, with significant cost control results. 24Q1 revenue was 3,954 billion yuan, +26.1% year-on-month, and +1.5% month-on-month. Overall, the IoT downstream boom was repaired, and the year-on-year growth rate improved marginally; the return was 55 million yuan, turning a year-on-year loss into a profit. The scale effect was prominent, leading to an increase in net profit to mother. Since the second half of '23, the company has taken steps to reduce costs and increase efficiency, and the number of R&D personnel has been reduced from a high of 4,520 at the end of '22 to 4158 at the end of '23. R&D expenditure in the first quarter was 380 million yuan, and the R&D expenditure rate fell 4.4pct to 9.6% year on year. The cost ratio returned to a normal historical level, offsetting the squeeze on profit margins due to high R&D investment since 23Q1. In addition, the company's sales/management/financial expense ratios were 2.8%/2.4%/0.5%, respectively, compared with -0.9pct/-0.7pct/-1.2pct. The cost-side control results were remarkable.
The strategy extends and lays out new business volumes to enhance the capabilities of integrated IoT solutions. The company aims to provide customers with comprehensive IoT solutions. On the basis of consolidating and perfecting the cellular module business, the company continues to expand fields with great potential and broad market size. The company's early layout of vehicle modules, smart modules, GNSS modules, antennas, and ODM business all grew well. In addition, in the direction of industrial intelligence, agricultural intelligence, intelligent solutions, certification testing services, etc., the company is also gradually planning and developing, and these businesses will all become new growth engines for future company development. In addition, the company's subsidiary with ODM as its main business relied on Yiyuan's rich global IoT resources to continuously build and improve R&D, design, production and other capabilities, and actively expand industry applications and services. ODM business revenue grew rapidly in 2023.
Profit forecast and investment advice: Revenue in '23 showed a quarterly improvement trend, and 24Q1 revenue continued to increase year-on-year. Overall, we are optimistic that the recovery in downstream demand in the IoT industry is expected to continue. In the long run, as the leading manufacturer in global shipments, the company has steadily increased its market share as its global influence continues to grow and diversified product portfolio. We expect the company's net profit to be 438 million yuan, 643 million yuan and 847 million yuan respectively, up 383%, 47%, and 32% year-on-year, corresponding PE of 24 times, 16 times, and 12 times, maintaining a “buy” rating.
Risk warning
1. Market competition risk;
2. Foreign exchange fluctuation risk.