1Q24's revenue increased 12.6% year over year, putting pressure on the profit side in the short term. The company's main business is semiconductor and product integration business (ODM), where the integrated business includes the manufacture of products such as mobile phones, laptops, IoT, home appliances, and automotive electronics; therefore, the company's business is highly correlated with the semiconductor cycle and consumer electronics demand. In '23, the company achieved revenue of 61.2 billion yuan (YoY +5.4%), net profit of 1.13 billion yuan (YoY -28.6%), and gross profit margin of 16.1% (YoY-2.1pct). Among them, losses in the product integration business and optical business in the fourth quarter led to a year-on-year decline in net profit for the whole year. Entering the overall 1Q24 semiconductor and ODM business, the company achieved revenue of 16.2 billion yuan (YoY +12.6%, QoQ -3.3%), net profit after deducting non-attributable net profit of -87 million yuan (YoY -122%, QoQ -90%); gross profit margin of 9.2% (YoY-8.7pct, QoQ-3.0pct) in a single quarter.

After 4Q23, the product integration business was under pressure, and the net loss in the optical business affected the company's profit level in '23. In 2023, the company's ODM business had a net loss of 447 million yuan, including impairment of goodwill of 494 million yuan and operating profit of 47 million yuan; 1-3Q23's product integration business achieved net profit of 255 million yuan. Affected by early investment in laptop products from specific customers, the 4Q23 product integration business lost about 205 million yuan. Entering 1Q24, due to lower prices for new mobile phone projects combined with increased raw material costs and labor costs, the ODM business had revenue of 12.42 billion yuan in the first quarter, net loss of 350 million yuan, and a gross profit margin of 3%; it is expected that with the launch of non-mobile phone businesses such as specific customers, the ODM business will gradually reduce losses. In addition, the optical business stopped producing optical module products for specific customers in 4Q23, resulting in asset impairment preparations of 295 million yuan, asset disposal losses of 230 million yuan, and a total impact of 190 million yuan on related personnel placement expenses and deferred income tax transfers, which ultimately affected the net profit of about 500 million yuan to the mother.

The semiconductor business is leading the world, and short-term profit levels declined due to industry sentiment. The company's semiconductor business, Anshi Semiconductors, is leading the world in all segments: the world's largest shipments of small-signal diodes and transistors, second in the world for logic chips, number one in the world for ESD protection devices, number one in the world for small-signal MOSFETs, and second in the world for automotive-grade PowerMOS. Global automotive semiconductors slowed in stages after 4Q23. 1Q24's semiconductor gross business revenue was 3.42 billion yuan (YoY -10%), gross business margin was 31.0% (YOY-10.67pct), and net profit of 520 million yuan (YoY -21%). Short-term performance declined. The future semiconductor business is expected to gradually pick up as the industry boom bottoms out.

Investment suggestions: Due to the impact of the company's ODM goodwill and optical business impairment on the company's net profit in the year 23, and the impact of the ODM business profit situation in the fourth quarter fell short of the expected impact, the company's net profit for 23 was lower than the previous forecast of 3.09 billion yuan. Based on the company's semiconductor and product integration business situation in the first quarter, considering the investment income brought by the sale of NEWPORT fabs, it is estimated that net profit from 24-26 will be 12/23/2.7 billion yuan (previous value of 37/40 billion yuan in 24-25), corresponding to PE 34/18/15x. Maintain a “buy” rating.

Risk warning: Demand for semiconductors falls short of expectations, and consumer electronics demand falls short of expectations.