Incident: In 2023, the company achieved operating income of 62,295 billion yuan (YoY +33.69%), net profit attributable to mother of 5.537 billion yuan (YoY +122.93%), and net profit not attributable to mother of 5.134 billion yuan (YoY +131.61%). 1Q24 achieved revenue of 17.443 billion yuan (YoY +88.10%); net profit attributable to mother of 1,626 billion yuan (YoY +210.30%); net profit after deducting non-attributable net income of 1,354 billion yuan (YoY +342.59%).
Develop emerging markets and promote product upgrades. The company continues to explore emerging markets while benefiting from product structure upgrades and cost optimization. 4Q23/1Q24's gross margin was 23.6%/22.2%, and the company's net profit margin was 8.7%/9.4%.
Market share rankings are stable, and emerging markets are consolidating their advantages. The company's overall mobile phone shipments in 2023 are about 194 million units. According to IDC statistics, in 2023, the company's share of the global mobile phone market was 14.0%, 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. According to IDC statistics, in 2023, the company's share of the African smart phone market exceeded 40%, ranking first in Africa. In the South Asian market: Pakistan's smart phone market share exceeds 40%, ranking first; Bangladesh's smart phone market share exceeds 30%, ranking first; India's smart phone market share is 8.2%, ranking sixth.
Company growth logic: market, product, track and ecology. Market: Africa-based, sharing the dividends of the rapid growth of third-world niche markets. The mobile phone market in major countries around the world is beginning to become saturated and gradually enters stock competition, while the mobile phone penetration rate in emerging markets composed of third world regions such as Africa and Southeast Asia is still low. Product: Meets user preferences. Based on localized innovation and product positioning focused on user experience, the company's brand has high user loyalty, which is the company's unique competitive advantage. A series of R&D designs that deeply meet the usage preferences of local consumers have not only successfully cultivated consumers' usage habits, but also established brand competitiveness by strengthening brand recognition in the minds of consumers. Track: Limited diversification, opening the path of “borderless” expansion. The company's 3C parts and appliances business is expected to create a second growth curve. Ecology: Hardware+software to create a third-world “Apple ecosystem”. The company develops and deeply customizes smart terminal operating systems based on the Android system, and generates revenue through software and hardware integration such as app stores and advertisement distribution.
Profit forecasts and investment recommendations. Based on the African market, the company has now entered other emerging market countries. At the same time, it also lays out digital accessories, household appliances and mobile Internet services, forming an ecological model of “mobile phone+mobile Internet service+home appliances and digital accessories” to create a closed commercial loop. We judge that the company is expected to share the dividends of the rapid growth of the third-world niche market. Along with the continuous increase in mobile phone penetration and the increase in ASP brought about by the conversion of functional phones to smart phones, we expect the 24-26 EPS to be 7.89/9.26/10.96 yuan, respectively. Considering comparable company valuation levels and the high growth rate in the regional market where the company is located, the 24-year PE valuation range is 20-25x, corresponding to a reasonable value range of 157.8-197.25 yuan, maintaining a “superior to the market” rating.
Risk warning: the risk of large non-recurrent losses due to exchange rate fluctuations; the risk of increased competition in the mobile phone industry in emerging markets due to domestic brands going overseas; and falling short of expectations in the mobile internet business poses a downside risk in valuation.