Steady revenue growth and significant improvement in profitability in 2023
Shangsheng Electronics had revenue of 2.33 billion yuan (yoy +31.5%) in 2023, gross margin of 25.5% (yoy+5.2pct), and net profit to mother of 160 million yuan (yoy +82.4%), mainly due to a year-on-year increase in revenue growth of 12.5 pct to 33.8%/gross margin of 7.6 pct to 28.1% year-on-year. 1Q24's revenue was 60 billion yuan (yoy +32.0%), and net profit to mother was 60 million yuan (yoy +95.4%). The sharp increase in net profit to mother was mainly due to improved gross margin and increased receipt of government subsidies. We are optimistic that the company will benefit from the upgraded cockpit acoustics configuration, and it is expected to release performance in line with the new power of major customers. We expect the company's revenue for 24/25/26 to be 30.5/38.0/4.52 billion yuan, and net profit to mother of 26/3.4/42 billion yuan.
Give 23X PE for 24 years (considering that the company is a pure acoustic component supplier; the comparable company is mostly a platform-based company with a 25% valuation discount) and maintain a “purchase” with a target price of 37.95 yuan.
2023 review: Revenue grew steadily, and gross margin continued to recover by business segment: (1) car speaker revenue of 1.85 billion yuan, up 33.8% year on year, gross profit margin of 28.1% (yoy+7.6pct); (2) vehicle amplifier revenue of 360 million yuan, up 34.5% year on year, gross profit margin 15.6% (yoy-0.1pct); (3) AVAS revenue of 0.9 billion yuan, up 51.0% year on year, gross profit margin 16.3% (yoy+1.87pct). We saw a significant improvement in the company's gross margin of speakers in 2023, exceeding our expectations by 25%, mainly benefiting from the increase in ASP (yoy +13%), the rapid decline in raw material costs, and price compensation from overseas OEMs; however, there has been no significant increase in the gross margin of the amplifier business. In '23, the company's net profit was affected by nearly 30 million due to a decrease in exchange revenue and an increase in credit and asset impairment losses. In the end, the company recorded a net interest rate of 6.8%, yoy+1.9pct.
1Q24&24 outlook: 1Q24's net profit increased high, focusing on the growth of the power amplifier business in '24, 1Q24's revenue of 60 billion yuan (yoy +32.0%), gross margin of 24.7%, +1.3 pct year on year, -3.2 pct month-on-month, and net profit of 60 million yuan (yoy +95.4%). In addition, the company received a government subsidy of 19.44 million yuan in 1Q24, which contributed significantly to the increase in net profit to the mother. Looking ahead to 2024, we are optimistic:
(1) As the company's fund-raising capacity continues to be implemented and raw material control and automation advance, the overall speaker market share and gross margin level continue to increase. (2) The growth and targeting of new power customers such as Ideal, Huawei, NIO, and Xiaomi is expected to contribute to good growth, especially in the power amplifier business. We expect sales of amplifiers to reach 800,000 units in 24, an increase of 85% over the previous year.
Target price of $37.95, maintaining buy rating
We are optimistic that the company, as a major cockpit acoustics company, will benefit from intelligent development to achieve steady growth. Considering industry competition factors and an increase in the share of amplifier revenue, we expect the gross margin for 24/25/26E to be 25.0/25.1/ 25.2%, slightly lower than 25.5% in '23. We gave 24/25/26E company EPS1.65/2.12/2.63 yuan, corresponding to 2024E, the current PE is 17.7X. We gave the company a target price of $37.95, maintaining the buy rating.
Risk warning: Downstream customer sales fell short of expectations, and industry competition caused orders and gross margins to fall short of expectations.