Revenue growth is expected to improve in 2024, and gross margin will remain under pressure
Considering the depreciation pressure brought about by the company's expansion of production, the company indicates that depreciation will increase by more than 20% year on year in 2024. We lowered the 2024-2025 net profit forecast from 7/1.2 billion US dollars to 4/8 billion US dollars, and added the net profit forecast to mother of 1.4 billion US dollars in 2026, corresponding year-on-year growth rates of -53.9%/104.0%/64.4%, respectively. The current stock price of HK$16.26 corresponds to 0.8 times PB in 2024, which is basically in line with medium- to long-term ROE. Along with the recovery in the semiconductor industry, the increase in domestic customers, and the scarcity value of production capacity, it is expected to drive the company's PB valuation to achieve phased upward opportunities and maintain a “buy” rating.
2024Q1 revenue exceeded expectations, stemming from consumer electronics demand driving the company's revenue of US$1.75 billion in 2024Q1, up 4.3% month-on-month and 2% higher than previous guidance. Among them, shipments increased 7.2% month-on-month, and the capacity utilization rate increased from 76.8% in 2023Q4 to 80.8%. The analysis was mainly due to a recovery in demand in the middle- and low-end consumer electronics markets and a decline in inventory levels, corresponding to the increase in orders for low-power Bluetooth, MCU and other related products. Looking at the application structure of revenue, the share of 2024Q1 consumer electronics in revenue increased to 30.9% from 22.8% in 2023Q4. 2024Q1's ASP fell 2.6% month-on-month. The analysis was mainly due to the fact that the prices of standard products such as 12-inch high-voltage display drivers and CIS are still falling, while the remaining 12-inch products and 8-inch prices are basically stable. Considering the recovery in consumer electronics demand and the increase in set-top box and TV sales due to intensive sporting events in 2024, we expect the company's shipments to continue to grow; considering that the price of standard products may still be under pressure, the company expects ASP to decline sequentially every quarter in the future, but the decline is manageable. The company guides 2024Q2 revenue to increase 5%-7% month-on-month. At the same time, the company believes that 2024Q3 revenue will not decline month-on-month based on ongoing orders. Therefore, we expect the company's annual revenue growth rate to exceed 15% in 2024.
The company maintains production expansion plans, and gross margin will still be under pressure due to increased depreciation. Currently, the company sees an increase in customer share in the mobile phone supply chain, such as display driver ICs, CIS, ISP, fast charging products, etc. Therefore, the company expects to increase the production capacity of 3-35,000 12-inch monthly tablets every year in the future to increase market share.
Considering depreciation pressure brought about by the company's active expansion of production, we expect that the company's gross margin will continue to be under pressure. Combined with the rigidity of operating expenses, the net profit returned to mother may decline year-on-year in 2024.
Risk warning: Industry sentiment recovery falls short of expectations, capacity expansion falls short of expectations, product price reduction risks.