Incident: On April 18, Sifang Optoelectronics (688665.SH) released its 2023 annual report: revenue of 692 million yuan, +14.82%; net profit to mother of 133 million yuan, -8.78% year over year; net profit after deducting non-return to mother of 128 million yuan, -8.84% year on year; gross profit margin of 45.14%, +0.89pct year on year.
Net profit margin 19.53%, year-on-year -4.82pct.
Among them, 2023Q4's revenue was 240 million yuan, +16.86% YoY, +45.99%; net profit to mother was 0.31 million yuan, -30.85% YoY, +6.43% month-on-month; net profit before non-return to mother was 0.29 billion yuan, -34.20% YoY, +2.43% month-on-month; gross margin was 45.93%, +0.63pct YoY, +3.03pct month-on-month; Net sales margin was 13.62%, -8.69pct YoY and -4.81pct month-on-month.
Incident 2: On April 29, the company announced its 2024 first quarter report: Q1 achieved operating income of 142 million yuan, +1.40% year over month, -40.83% month on month; net profit to mother of 20 million yuan, -48.81% year on month; net profit without return to mother was 0.17 million yuan, -55.22% year on month, and -42.56% month on month. Gross margin was 41.74%, -4.67pct, -4.19pct month-on-month; net sales margin was 14.31%, -13.50pct yoy, 0.69pct month-on-month.
Core views:
Q1 Revenue was basically in line with expectations, and expenses for the period were under pressure
Revenue for Q1 in '24 was 142 million yuan, +1.40% year-on-year. The main reason for the increase was revenue growth in the smart metering business, which mainly focused on ultrasonic gas meters and their modules, the industrial and safety business, which mainly focused on refrigerant leak detection sensors, and the automotive electronics business, which mainly focused on automotive comfort system sensors, which were +240.02%/59.85%/37.56% year-on-year, respectively. Meanwhile, the healthcare and HVAC businesses declined by 66.05%/3.96%, respectively. Furthermore, the company's business revenue has obvious seasonal characteristics. Although the scale of revenue in the first quarter is small, the business will gradually increase in the second and third quarters.
Net profit attributable to mother was $20 million, or -48.81% year-on-year. The decline was affected by period expenses, gross margin, and other earnings. Among them, the reason for the year-on-year increase in management expenses, sales expenses, and R&D expenses was due to the increase in personnel expenses due to the increase in R&D personnel and personnel in Jiashan Industrial Park; share payment expenses increased due to equity incentives in '23. The Q1 gross margin was 41.74%, or 4.67pct year on year. The main reason for this decline was the impact of changes in product structure. The share of revenue from high-margin products such as healthcare declined, and the share of revenue from low-profit products such as automotive electronics increased; Jiashan Industrial Park is still climbing in production capacity.
Revenue has continued to grow for 23 years, and the product structure has been further enriched
The main reason for the company's overall revenue growth in '23 was the rapid growth of the company's revenue in the business fields of automotive electronics, smart metering, industrial and safety, scientific instruments, and healthcare.
1) Gas analysis instruments: 23 million yuan in revenue, +24.73% year-on-year. Gross profit margin 67.26%, +5.39pct year over year. Sales volume in '23 was 101,000 units, +13.12% YoY. Among them, revenue from scientific instruments, mainly environmental testing, increased 25.51% year-on-year. Under the national dual carbon and scientific instrument localization and national 6b standard policy, the company has consolidated its advantages in the field of environmental monitoring, actively developed markets related to carbon measurement such as greenhouse gas analyzers, and promoted overall solutions for the ferrous metallurgy, petroleum and other industries while promoting complete engine emission testing solutions for O2 and NOx sensors. 2) Gas sensors: Revenue of 543 million yuan in 23 years, +12.51% year-on-year.
The gross profit margin was 40.9%, -0.17pct year over year. Sales volume in '23 was 9.72 million units, +6.97% YoY. Among them, the revenue from the healthcare business, which mainly focuses on ultrasonic oxygen sensors, was +68.51%; the revenue from the smart metering business, which mainly focuses on ultrasonic gas meters and its modules, was +114.98%. The company has played an important role in related medical fields with a richer medical sensor product line around the respiratory system. At the same time, the company has increased its investment in research and development and certification of respiratory related medical devices. In addition, the company's ultrasonic gas meter supply chain and batch manufacturing capabilities have advantages, and it has cooperated with domestic and foreign companies.
Gross profit is still rising, and short-term net interest rate adjustments due to R&D expenses
The company's net profit declined year-on-year in '23, mainly due to cost increases due to future sustainable development of the company's layout. 1) Gross profit margin: 45.14% gross profit margin in '23, +0.89pct year-on-year. The main reason for the increase in gross margin is due to the rapid increase in revenue from the company's high-margin businesses such as scientific instruments, industry and safety, and healthcare, to achieve continuous optimization of the business structure, and at the same time actively promote cost reduction and efficiency. 2) R&D and period expenses: R&D expenses increased by 25.9.396 million yuan in 23 years, an increase of 46.07% over the previous year. The main reason for the increase was the increase in R&D related expenses such as R&D personnel, materials, and testing. Expenses for the 23-year period represented an overall upward trend in future sustainable development, up to +6.45 pct compared to the previous year, leading to a short-term adjustment in net interest rate.
The automotive electronics business took a three-pronged approach to receive new orders in bulk, supporting the company's growth momentum as the second growth curve for gas sensor product applications. The company's automotive electronics business, which mainly focuses on automotive comfort system sensors and high-temperature gas sensors, continued to expand, with revenue of 214 million yuan, +36.70% year over year, and gross profit margin of 26.42%, or +3.5 pct year over year.
1) Smart cockpit: The total fixed amount of automotive comfort system supporting sensor projects added in '23 exceeded 1.4 billion yuan. At the same time, the company launched car seat ventilation fan products and entered the batch supply stage. Starting in '24, the company will step up the development of in-car air improvement devices and enter the supply chain systems of many well-known automobile groups. 2) Engine: The company continues to actively explore domestic and foreign markets to expand production capacity and achieve domestic replacement. The company has sold more than one million O2 sensor front-mounted configurations, and O2 sensors suitable for motorcycles and ventilation have been developed and gradually entered the market.
The first NOx sensor front assembly project has completed all testing and verification work, and will be launched on the market in batches in 2024. At the same time, the company has expanded high-temperature chip production lines and sensor packaging and aging production lines, and production capacity has been greatly increased; 3) Power batteries: Power battery thermal loss detection sensors have been shortlisted for car companies and leading battery companies. Lithium battery thermal uncontrolled gas production and battery charging/discharging process gas production online testing solutions have received approval and orders from mainstream battery companies and research institutes, and the project will be mass-produced one after another.
Consolidate and increase the market share of the HVAC business. Demand for the basic HVAC business in the controller business picked up in the second half of the year 23, and gradually picked up in the first quarter of 24. HVAC business revenue in '23 was 174 million yuan, -25.87% YoY, gross profit margin 40.46%, -8.97pct YoY. The company's sales revenue in the HVAC business declined year-on-year due to the slowdown in new demand in the domestic and foreign air purifier markets. In 24 years, the company continued to consolidate customer advantages in the smart home field such as dust sensors and formaldehyde sensors, improve the occupancy rate of environmental appliances and cleaning appliances; promote module and controller products that integrate air quality sensors; and obtain controller business orders from many leading domestic and foreign home appliance companies through ODM cooperation.
Investment advice:
The company's performance continued to grow in 2023. The targeted transformation of automotive product projects supported the company's growth momentum, diversification of customers, and expansion into new energy, autonomy and new forces. The consumer sensor business is gradually stabilizing and containing new momentum. Demand for gas analyzers is steadily increasing, and at the same time, three new industries are gradually being industrialized. As expenses support the company's sustainable development during large-scale development, the cost rate will fall back to the normal range. We expect the company's 24-26 operating income to be 9.72/12.48/1,599 million yuan, +40.5%/+28.4%/+20.9%; it will achieve net profit of 1.81/245/341 million yuan, +36.3%/+41.1%/+33.8% year over year, corresponding to 2024/2025/2026 P/E19.69/13.96/10.43x, maintaining the “buy” rating.
Risk warning:
The global automotive boom falls short of expectations; the recovery in demand for civilian products falls short of expectations; the targeted transformation of automotive projects falls short of expectations; the development of gas analyzers falls short of expectations; technology development and product innovation are unfavorable; and market competition is intensifying.