Incidents:
The company released the 2023 Annual Report and the 2024 First Quarter Report. In 2023, the company achieved operating income of 4.378 billion yuan (YoY +19.05%); net profit to mother of 1,122 million yuan (YoY +4.95%); achieved gross profit margin of 46.45% (-6.46pct), net profit margin of 25.57% (YoY -3.75pct).
With 2024Q1, the company achieved revenue of 1,190 billion yuan (YoY +67.16%, -8.80%), net profit to mother of 198 million yuan (YoY +69.83%, YoY -34.81%); net profit of 194 million yuan (YoY +64.82%); achieved gross profit margin of 42.78% (YoY -6.05 pct, -0.20pct month-on-month), achieving net profit margin of 16.56% (YoY +0.25pct, month-on-month -6.55pct).
Comment:
The increase in R&D expenses led to a decline in net interest rates, the proportion of module products continued to increase, and L-PAMID achieved a “0-1” breakthrough. Sales/management/R&D/finance expenses for the full year of 2023 were 1.07%/3.54%/14.37%/-1.01%, respectively, +0.26pct/+0.58pct/ +2.16pct/ +2.16pct/-0.05pct, respectively. 2024Q1, the company's R&D expenses reached 269 million yuan, +118.70% year on year; sales, management, R&D and finance cost rates for the single quarter were 1.09%/3.45%/22.61%/0.08%, respectively, +0.11pct/ -0.77pct/+5.33pct/+1.49pct; month-on-month ratio -0.52pct/+0.61pct/+5.81 pct/ +0.85pct. The sharp increase in R&D costs is mainly due to an increase in production line costs. By business, in 2023, the company's RF discrete devices/RF modules achieved revenue of 27.14/1,591 billion yuan respectively, +8.94%/+42.22%, respectively. The share of RF modules increased from 30.42% in 2022 to 36.34% in 2023. The production capacity of the filter production line has been steadily climbing since large-scale mass production, helping the market coverage and penetration rate of DiFeM, L-diFem, and GPS module products with integrated self-produced filters continue to increase in the brand's clients.
In 2023, the process research and development platform for SAW filters for the company's 6-inch production line was completed, and the products were gradually upgraded from ordinary SAW filters to MAX-SAW filter products. At present, the integrated company's self-produced max-saw L-PAMID product has achieved a breakthrough of 0-1 and is in the engineering sample stage. This large single product is expected to fill the last area of the company's mobile phone RF and open up the growth ceiling for the company's RF business. At the same time, L-pamif, LFEM and other related module products that integrate self-produced IPD filters have been verified and shipped to many clients.
Equity incentives highlight the company's confidence in long-term development. Specifically, the 100% grant conditions in the equity incentive plan are: 2024-2026 revenue of not less than 50.77/60.93/7.0.07 billion yuan, with corresponding annual growth rates of not less than 16%/20%/15%, respectively; 80% grant conditions are: 2024-2026 revenue is 46.54/53.53/5.888 billion yuan, respectively, with corresponding annual growth rates of not less than 6%/15%/10%, respectively. The company's move helps stabilize the core team and shows confidence in long-term development.
Maintain a “buy” rating. Considering the impact of costs and depreciation related to the company's production line, we lowered the 24-25 net profit forecast to be 11.85/1,344 billion yuan (the reduction ratio is 22.40%/32.05%) and added the 2026 net profit forecast to 1,685 billion yuan, corresponding to the current PE valuation to 41x/36x/29x, respectively. Zhuo Shengwei is a leading domestic RF front-end company. We are optimistic about the company's modular layout and long-term competitiveness brought about by self-built production lines, and maintain a “buy” rating.
Risk warning: Downstream demand falls short of expected risk, new product development or customer introduction progress falls short of expected risk, and industry competition increases risk.