Core views

Affected by weak demand from downstream customers, the company's operations were under pressure in 2023. The company adheres to the strategy, continues to increase R&D and market investment, and practice internal skills. It is progressing smoothly in the automotive and overseas markets in 2023. As demand in the downstream market picked up, the company's revenue trend improved. Revenue in the first quarter of 2024 achieved a year-on-year increase of 29.65%, and phased fluctuations in gross margin affected profits. With the expansion of the company's business scale, high computing power modules and the increase in overseas market revenue share, the company's profitability is expected to gradually increase in the future.

occurrences

The company publishes its 2023 annual report and 2024 quarterly report. In 2023, the company achieved revenue of 2,147 billion yuan, a year-on-year decrease of 6.88%; realized net profit of 64.51 million yuan to mother, a year-on-year decrease of 49.54%. In the first quarter of 2024, the company achieved revenue of 574 million yuan, a year-on-year increase of 29.65%; realized net profit of 6.47 million yuan to mother, a year-on-year decrease of 64.33%.

Brief review

1. Due to pressure on demand and increased investment in the early stages, revenue declined slightly in 2023, and profit declined significantly.

In 2023, the company achieved revenue of 2,147 billion yuan, a year-on-year decrease of 6.88%; realized net profit of 64.51 million yuan, a year-on-year decrease of 49.54%; realized net profit of 36.97 million yuan after deduction, a year-on-year decrease of 62.52%. In 2023, the company expects a total cash dividend of 25.79 million yuan, accounting for 39.99% of net profit due to mother in 2023.

The company's revenue declined slightly in 2023, mainly affected by downstream customer demand. In 2023, the company's comprehensive gross margin was 19.16%, up 1.3 pct year-on-year. It was mainly driven by an increase in the share of shipments of automotive products, 5G products, high-computing power products, and high-margin products from overseas customers, driven by a decrease in shipments of low-margin products such as NB\ CAT1. The decline in profit over the decline in revenue was mainly due to large investment in R&D and sales. In 2023, the company's sales expenses were 63.8 million yuan, up 37.62% year on year, and R&D expenses were 214 million yuan, up 15.04% year on year.

Management expenses in 2023 were 61.03 million yuan, up 12.29% year-on-year

2. The automotive business and overseas business are growing rapidly.

The company's business is mainly aimed at the three major application areas of intelligent connected vehicles, FWA, and traditional IoT.

In 2023, the company continued to ship 5G smart cockpit modules in large quantities to core automotive customers. Revenue in the smart connected vehicle sector maintained a rapid growth trend, and the share of revenue increased. The overall demand of the traditional IoT industry is relatively stable, and its share of revenue remains relatively stable. The FWA sector showed a downward trend in revenue share due to changes in existing customer structures and needs.

Overseas business layout and industrial expansion have continued to be increased, and overseas revenue has grown rapidly. In 2023, the company's domestic revenue was 1,491 billion yuan, down 15.28% year on year; overseas revenue was 656 million yuan, up 20.27% year on year, and the revenue share increased from 23.66% in 2022 to 30.56% in 2023. As the revenue scale and customer quality of overseas customers increased, the gross margin level of the company's overseas revenue increased significantly. The gross margin of the company's overseas business in 2023 was 22.02%, up 3.98 pct year on year.

3. Revenue grew rapidly in the first quarter of 2024, and gross margin declined due to changes in revenue structure.

As demand from the downstream market picked up, the company's revenue trend improved. In the first quarter of 2024, the company achieved revenue of 574 million yuan, an increase of 29.65% over the previous year.

Among them, overseas revenue was 226 million yuan, up 53.74% year on year. The revenue growth rate accelerated, and the revenue share increased to 39.37%; domestic revenue was 348 million yuan, up 17.57% year on year, returning to the growth trajectory. Demand is picking up in the three major fields, including intelligent connected vehicles, FWA, and IoT. Among them, FWA and IoT businesses come from stronger demand from overseas customers. The consolidated gross margin for the first quarter of 2024 was 15.69%, down 6.9pct year on year. This was mainly due to the concentrated shipment of some products with low gross profit levels in the first quarter. Shipments of intelligent connected vehicle products increased but gross margin decreased year on year. In the first quarter of 2024, the company achieved net profit of 6.47 million yuan, a year-on-year decrease of 64.33%; deducted non-net profit of 5.1 million yuan, a year-on-year decrease of 60.72%.

4. The array of computing power modules and intelligent module products continues to be enriched.

The AI model is expected to gradually sink to the terminal side, and edge side computing power requirements are increasing, which will drive demand for intelligent modules and computing power modules. The company actively builds products, increases R&D investment and marketing of computing power products. Module products developed for various special scenarios with strong demand for CPU\ GPU\ NPU computing power can provide 0.2 T to 48T heterogeneous computing power, and provide flexible configurations of computing power+algorithm+communication, which have been recognized by many industries and customers. In the future, with the upgrading of informatization and intelligence throughout the industry and the development of the artificial intelligence industry, the company's computing power modules and intelligent module products will have broad room for growth.

5. Profit forecasts and investment suggestions.

Affected by weak demand from downstream customers, the company's operations were under pressure in 2023. In addition to adhering to the strategy and making every effort to develop and mass-produce products for existing customers, the company continued to increase R&D and market investment in intelligent connected vehicles, overseas high-end IoT markets, high computing power modules and generative AI applications, and practice internal skills. It progressed smoothly in the automotive and overseas markets in 2023. As demand in the downstream market picked up, the company's revenue trend improved. Revenue in the first quarter of 2024 achieved a year-on-year increase of 29.65%, and phased fluctuations in gross margin in the first quarter affected profits. We believe that with the expansion of the company's business scale, the increase in high-computing power modules and the share of revenue in overseas markets, future profitability is expected to gradually increase. We expect the company's revenue from 2024 to 2026 to be 2,752 billion yuan, and 4.461 billion yuan, respectively, and net profit to mother will be 97 million yuan, 152 million yuan, and 210 million yuan respectively. The corresponding PE is 60x, 38x, and 28x, respectively, maintaining a “buy” rating.

6. Risk warning. Changes in the macroeconomic environment affect demand. Weak downstream demand for vehicles, FWA, and pan-IoT causes the company's business development to fall short of expectations; increased competition in the industry affects the company's supply share in major customers, or causes the company's gross margin to decline; the company's product iteration falls short of expectations or the transformation of R&D investment results falls short of expectations, affecting the company's product sales; shortages of raw materials such as chips and price increases exceed expectations, causing the company's gross margin to fall short of expectations; large exchange rate fluctuations affect the company's financial expenses and procurement costs, thereby affecting the company's net profit margin; Progress in supply chain optimization and cost control fell short of expectations; changes in the international environment affected the company's supply chain security and overseas expansion, etc.