Core views

The company's net profit fell 77.65% in 2023, mainly due to: ① lithium batteries accounted for 32.45% of the company's revenue in 2022, which fell sharply due to industry influence; ② the promotion of new products fell short of expectations, and the overall gross margin fell 5.88pct; ③ increased fixed costs for new rental housing and expansion personnel. ④ Strengthen product promotion efforts. Borrowed products have increased, and full charges have been made, and it is expected that they will return in the future.

Eko Optoelectronics specializes in core machine vision components such as industrial cameras and image grabbers, and is positioned as an imported replacement for the middle and high-end markets. Looking ahead to 2024, with the development of new products and new industries, the company's profit margin is expected to continue to increase, and the trend of quarterly performance improvement is expected to continue.

occurrences

In 2023, the company achieved revenue of 236 million yuan, a year-on-year decrease of 10.31%, net profit of 0.16 million yuan, a year-on-year decrease of 77.65%, after deducting non-net profit of 0.09 million yuan, a year-on-year decrease of 85.03%. Looking at Q4 alone, the company achieved revenue of 72 million yuan, an increase of 31.64% year-on-year, and net profit of 0.09 million yuan, an increase of 51.14% year-on-year.

2024Q1 achieved revenue of 63 million yuan, an increase of 9.64% year on year, net profit attributable to mother of 190 million yuan, an increase of 213.95% year on year, after deducting non-net profit of 0.05 billion yuan, an increase of 29.30% year on year.

Brief review

Weakening demand in the lithium battery industry is dragging down revenue, and 2023Q4 and 2024Q1 have begun to improve quarterly

In 2023, due to various factors such as declining global economic growth, overall macroeconomics, and lithium battery industry cycle changes, client cost pressure increased and demand growth slowed. The company achieved operating income of 235.5754 million yuan, a decrease of 10.31% over the same period last year.

1) By product, both line scan and face scan sales have increased. In 2023, the company sold 1939 industrial surface scan cameras, up 7.72% year on year, 24,694 industrial line scan cameras, up 32.53% year on year, and 17,538 image capture cards, down 7.71% year on year. We believe this is related to the company's increased sales promotion efforts.

2) By region, overseas growth is faster and profitability is stronger. In 2023, the company's domestic sales were 219 million yuan, down 10.38% year on year; overseas sales were 2.9731 million yuan, up 58.46% year on year, and the gross margin of overseas sales reached 65.85%, up 6.24 pcts year on year. Compared with domestic sales gross margin, we believe this may be related to the better overseas competition pattern, the company's exports target advanced foreign products, and the added value of technology is higher.

3) By industry, lithium batteries are the main drag factor. Lithium batteries accounted for 32.45% of the company's revenue in 2022. Affected by the industry, it declined sharply in 2023, becoming the main factor dragging down the company's overall operation.

2023Q4 and 2024Q1 have begun to improve results quarterly. On a quarterly basis, due to the decline in the lithium battery industry and falling short of expectations in the promotion of new products, the company experienced a decline in revenue and net profit from the 1st to 3rd quarter of 2023. 2023Q4 revenue increased 31.64% year on year, net profit increased 25.72% year on year, and 2024Q1 downstream new display and consumer electronics industries recovered. At the same time, the company gradually launched new products and active investment on the marketing side, leading to a restorative increase of 9.64% year-on-year, and net profit to the mother increased 213.95% year on year. We believe that the negative impact of lithium batteries on the company has been fully reflected in 2023, and with the development of new products and new industries, the trend of improving the company's performance every quarter is expected to continue.

Delays in the promotion of new products dragged down the gross profit margin, and the company's net profit in 2023 fell by 77.65%, mainly due to: ① due to the impact of the lithium battery industry, revenue fell 10.31%; ② the company's new products formed less revenue in 2023, and new products often had a high gross profit margin. Failure to supplement it in a timely manner caused the overall gross margin to drop by 5.88pct to 39.50%; ③ Increased fixed costs, and increased costs related to renovation expenses and new production line equipment investment. ④ Asset and credit impairment losses of 13.85 million yuan, an increase of 7.39 million yuan over the previous year. The main reason is that the company actively exploited the market in 2023. The number of products borrowed by customers increased, and the full amount was calculated in accordance with the rigor of accounting standards. It is expected to recover if sales are formed in the future.

Industrial cameras are the core components of machine vision systems. The company is technologically advanced. The promotion of new products and industries is worth looking forward to. Industrial cameras are the core components of machine vision systems. Eko Optoelectronics products are positioned in the middle and high-end to promote import substitution. Industrial cameras can convert the received optical signals into ordered electrical signals, which are then converted to analog-to-digital and sent to a processor to synthesize images. Compared with ordinary civilian SLR cameras, industrial cameras have the characteristics of better image quality, higher working stability, stronger anti-interference ability, and more efficient and reliable data transmission capability. European, American, Japanese, and Korean manufacturers dominate the global industrial camera and frame grabber market, such as Keyence (Keyence), Cognex (Cognex), Teledyne Dalsa, Basler, etc. Although China's machine vision industry is developing rapidly, technology accumulation is relatively weak. In particular, in terms of high-speed high-resolution cameras and high-speed image grabbers, China's machine vision equipment manufacturers mainly rely on imports, and the localization rate is very low. As the first company in China to deploy core machine vision components such as industrial cameras and image grabbers, Eko Optoelectronics's products are mainly used in the middle and high-end markets. It is one of the few domestic brands in the industry that can directly compete with mainstream international manufacturers in terms of performance.

More than 70% of new product models have opened up more scenarios, and the number of customers can be expected to increase by 45.32% year-on-year. Despite poor revenue performance in 2023, the company continued to advance in developing new products and new customers. Among them, more than 40 models of line scan cameras have been added, and nearly 20 models of surface scan cameras have been added, and more than 70% of product models have been added, expanding from visible light products to short-wave infrared and ultraviolet non-visible light and multispectral products, and from 2D products to 3D products. At the end of 2023, the company's total number of customers was 388, an increase of 45.32% over the previous year. Some customers are leading companies, and growth can be expected in 2024.

Profit forecasts and investment advice

As the first company in China to deploy core machine vision components such as industrial cameras and image grabbers, Eko Optoelectronics's products are mainly used in the middle and high-end markets. It is one of the few domestic brands in the industry that can directly compete with mainstream international manufacturers in terms of performance. The negative impact of lithium batteries on the company has been fully reflected in 2023. Looking ahead to 2024, with the development of new products and new industries, the company's profit margin is expected to continue to increase, and the trend of quarterly performance improvement is expected to continue.

Assumptions by business:

(1) Industrial line scan cameras: Considering that such products are widely used in image acquisition and processing in industrial manufacturing, biomedicine, scientific research, rail transit, agricultural product sorting, etc., in 2023, more than 40 new models will be added, which will be gradually expanded in 2024. Assuming that the revenue growth rate in 2024-2026 is 35%/38%/38%, respectively; at the same time, considering that the added value of new products is higher, assuming that the gross margin for 2024-2026 is 44%/45%/45.5%, respectively;

(2) Industrial surface scanning cameras: This type of product is mainly aimed at 3C, panels, etc. In 2024, nearly 20 new models of surface scanning cameras have been added, expanding from visible light products to short-wave infrared and ultraviolet non-visible light and multispectral products, which is expected to further increase the market share on clients. Assuming 2024-2026 revenue growth rates are 50%/35%/30%, respectively, and gross margin is 35%/38%/40%, respectively; (3) image capture cards: The growth rate of this type of product is basically the same as the growth rate of the company's cameras, and is used in conjunction with production lines. Assuming the 2024-2026 revenue growth rate is 40%/37%/35%, respectively; with scale effects and product upgrades, the gross margin for 2024-2026 is 53%/54%, respectively.

The company is expected to achieve net profit of 0.70, 1.05, and 155 million yuan respectively in 2024-2026, with year-on-year increases of 346.02%, 49.07%, and 47.71%, respectively. The corresponding PE is 33x, 22x, and 15x, respectively. Considering that the company's products are positioned in the middle and high-end and have advantages such as strong import substitution potential and product expansion capacity, it was covered for the first time, giving it a “buy” rating.

Risk analysis

(1) The risk of new product promotion and new business development falling short of expectations. The company's products have been used in industries such as PCBs, new displays, 3C electronics, lithium batteries, semiconductors, photovoltaics, packaging and printing, etc., but the company's main customer concentration is high, and the top five customers account for more than 45% of total sales revenue. When the company's products are promoted in different application fields and among different customers in the same application field, a certain amount of resource investment and time verification is required. If the company is unable to effectively expand new customers and obtain orders, it may cause adverse risks of future expansion in related downstream fields; at the same time, if the company cannot maintain business cooperation with customers in various industries in the future, cannot continue to operate in multiple business fields, or if the company's products cannot meet the product requirements of related fields and fail to complete the development and market layout of new products in a short period of time, it may adversely affect the company's business performance.

(2) Management risks brought about by the expansion of business scale. The company's operating scale continues to expand. As the company's business continues to develop and the implementation of fund-raising projects, the company's revenue and asset scale will expand further, thus placing higher demands on the company's management and internal management level in terms of resource integration, capital operation, and market development. If the business quality and management level of the company's management cannot meet the needs of the company's scale expansion, and the organizational model and management system are not adjusted and improved in a timely manner, the company will face greater management risks. Assuming that the company's management expenses increase by 2 pct, 4 pct, and 6 pct in 2024, 2025, and 2026, respectively, the company's net profit to mother will become 64 million yuan, 88 million yuan, and 120 million yuan.

(3) Risk of implementation of fund-raising projects. If future macroeconomic, industry trends, market environment, etc. change, or if project organization and management, plant construction schedule, production equipment installation and commissioning, mass production standards, etc. cannot be successfully implemented as planned, it will directly affect the project's commissioning time, return on investment, and the company's expected return, and will adversely affect the implementation or expected benefits of the fund-raising investment project, which in turn affects the company's operating performance.