The company released its 2023 annual report and 2024 quarterly report. The company achieved operating income of 2.15 billion yuan in 2023, a year-on-year decrease of 6.9%; realized net profit to mother of 64.509 million yuan, a year-on-year decrease of 49.5%.

In the first quarter of 2024, we achieved operating income of 574 million yuan, an increase of 29.7% year on year, and realized net profit to mother of 6.467 million yuan, a year-on-year decrease of 64.3%.

Domestic competition has intensified, and profitability is under pressure in the short term. The company's domestic revenue in 2023 fell 15.4% year on year. Affected by the macroeconomic environment, the domestic IOT market is still in the inventory removal cycle in 2023. At the same time, due to continued intensification of competition in downstream markets such as new energy vehicles and operators, the gross margin increase in the company's domestic business is weak. It has risen slightly by 0.1 percentage points compared to last year, and is basically the same. Domestic revenue showed signs of a steady recovery in Q1 in '24, but pressure on gross margin was still strong. We believe that as the domestic macro environment continues to improve, the company's domestic business is expected to break out of the trough and continue to recover.

Overseas business growth is impressive, and gross margin is high. The company achieved overseas revenue of 656 million yuan in 2023, an increase of 20.3% over the previous year, making up for the decline in some domestic business. The company's overseas business achieved a gross profit margin of 22.0% in 2023, 4.1 percentage points higher than the domestic business. Currently, overseas PC, consumer electronics and other industries have entered the inventory replenishment cycle, and demand continues to rise. We believe that as the company's overseas business continues to break through, it will bring new business growth points. The company achieved overseas revenue of 230 million yuan in 24Q1, an increase of 53.7% over 150 million yuan in the same period last year, which also proved the correct goal and layout of the company to develop overseas business.

End-side AI is ready to go, and the company's high-computing power modules are being laid out ahead of schedule. Currently, the global AI model continues to develop. At a time when the penetration rate of large models in the cloud is increasing, how to combine large models with edge-side devices is expected to become the next highlight. Compared to cloud AI, the edge-side model has characteristics such as low latency and high privacy, and is expected to become an important path for AI conversion of terminal devices. Edge AI is inseparable from the support of edge computing power. The company released the SM9X0 series high computing power modules based on the understanding and advance layout of Qualcomm's high computing power chips. Among them, the company's SM970 module is the first batch of AI module products developed based on the Qualcomm QCS8550 processor. The comprehensive AI computing power is up to 48 Tops, which can support high computing power requirements in downstream fields such as autonomous mobile robots, AI edge computing, and smart industries.

Investment advice: Currently, overseas IOT recovery is gradually showing. The company is expected to achieve breakthroughs in overseas markets with excellent manufacturing capacity and product structure. At the same time, the company's high computing power modules are also expected to benefit from the progress of AI on the end side. We forecast the company's 2024/2025/2026 revenue of 29.0/40.6/5.07 billion yuan, net profit to mother of 0.806/1.25/170 million yuan, and PE67.5/46.4/34.3x. The profit forecast has been revised due to weak domestic IOT recovery and increased competition. However, as overseas IOT enters the recovery cycle, the company's business is expected to return to the “dark horse” growth of the Internet of Things and maintain a “buy” rating.

Risk warning: Overseas business expansion falls short of expectations, global IOT demand falls short of expectations, and domestic IOT price reduction pressure continues.