Key points:
occurrences
On April 17, 2024, Higashiyama Precision announced its 2023 annual report. In 2023, the company achieved operating income of 33.65 billion yuan, an increase of 6.6% over the previous year; realized net profit of 1.965 billion yuan, a year-on-year decrease of 17.0%; and realized net profit without return to mother of 1,616 billion yuan, a year-on-year decrease of 24.0%. Corresponding to 4Q23, the company's revenue in a single quarter was 11.15 billion yuan, up 27.3% year on year, up 26.2% month on month; net profit from single quarter was 630 million yuan, down 19.7% year on year and up 24.3% month on month; net profit after deducting non-return to mother for the single quarter was 580 million yuan, down 13.6% year on year and up 25.9% month on month.
On April 24, 2024, the company announced its report for the first quarter of 2024. The 1Q24 company achieved revenue of 7.75 billion yuan, an increase of 18.9%; realized net profit of 290 million yuan, a year-on-year decrease of 38.7%; and realized net profit without return to mother of 260 million yuan, a year-on-year decrease of 6.7%.
The PCB business is improving steadily, and automotive electronics is growing rapidly
In 2023, the company achieved revenue of 33.65 billion yuan, up 6.6% year on year; corresponding to 4Q23, the company's revenue in a single quarter was 11.15 billion yuan, up 27.3% year on year and 26.2% month on month. In 2023, in the face of the overall weakness of the consumer electronics market, the company's PCB business showed good resilience. The company's PCB business achieved revenue of 23.261 billion yuan, an increase of 6.61% year on year. The NEV business developed rapidly, and revenue increased 168.39% year on year. 1Q24's revenue was 7.75 billion yuan, up 18.9% year over year. We believe the increase was mainly due to the impact of automotive electronics and the consolidation of some businesses. The company's gross profit margin in 2023 was 15.2%, down 2.4 pct year on year, net profit margin 5.8%, down 1.7 pct year on year. The gross margin of the company's core business was stable, mainly being dragged down by the LED business, causing overall gross margin to be damaged. However, on a quarterly basis, gross margin showed a recovery trend. 4Q23 gross profit margin was 17.6%, an increase of 2.8 pct month-on-month, and a net profit margin of 5.7%, which was basically flat from month to month. The gross profit margin of 1Q24 was 13.6%, down 1.2 pct year on year, mainly due to the impact of a steep decline in the operating rate of the precision manufacturing business.
From a profit perspective, the company achieved net profit of 1,965 billion yuan in 2023, a year-on-year decrease of 17.0%; net profit deducted from non-return to mother was 1,616 billion yuan, a year-on-year decrease of 24.0%. Net profit attributable to mother for the single quarter was 630 million yuan, down 19.7% year on year and up 24.3% month on month; net profit after deducting non-return to mother for the single quarter was 580 million yuan, down 13.6% year on year and up 25.9% month on month. Looking at the breakdown, the gross profit of the PCB portion of the company's core business continued to increase year over year. The decline in overall profit was mainly due to production capacity utilization rates and sales prices of some optoelectronic display devices and modules such as LEDs falling short of expectations, causing phased losses, which dragged down overall performance. 1Q24's net profit to mother was 290 million yuan, down 38.7% year on year; net profit after deducting non-return to mother was 260 million yuan, down 6.7% year on year; deducted non-profit was basically stable. Subsequently, as the precision manufacturing business gradually climbed upward and LED business losses narrowed, overall profit performance is expected to rise steadily.
Emerging applications are emerging, and PCB specifications continue to be upgraded
Smartphone functional innovations include folding screen phones bucking the trend, driving a rapid increase in stand-alone FPC usage; generative AI is being applied to mobile phones and computers, and 2024 is expected to be the first year of AI phones and AI PCs. The addition of AI may place higher demands on mobile phone FPC specifications, driving an increase in the number of FPC layers and a smaller line width and line spacing, thereby increasing the value of stand-alone FPC. Major leading manufacturers have launched XR products one after another, such as the Vision Pro, a smart terminal launched by Apple, which has created new demand for hard and soft boards. As category shipments increase, corresponding PCB demand will also rise; in addition, demand for automotive PCBs is also gradually growing along with the penetration rate of new energy vehicles.
Investment advice
We expect the company's net profit to be 24.05, 30.82, and 3,537 billion yuan respectively in 2024-2026, with corresponding EPS of 1.41, 1.80, and 2.07 yuan, respectively, and the PE corresponding to the latest closing price of 11.4, 8.9, and 7.8x respectively. The first coverage gave the company an “gain” rating.
Risk warning
Market recovery falls short of expectations; product expansion falls short of expectations; utilization rates fall short of expectations; industry competition intensifies; geopolitical risks.