Event: The company released its annual report for 2023 and the first quarter of 2024. In 2023, it achieved operating income of 61,213 billion yuan, an increase of 5.40% over the previous year, and realized net profit of 1,181 billion yuan, a year-on-year decrease of 19.00%. The first quarter of 2024 achieved operating income of 16.247 billion yuan, up 12.62% year on year and down 3.30% month on month; realized net profit of 143 million yuan, down 68.82% year on year, up 115.62% month on month, turning a loss into a profit.

Comment: The company's revenue achieved steady growth throughout 2023 and 24Q1. Automotive semiconductors performed well throughout 2023. Revenue in this field increased 22.95% year on year, and ODM business revenue for the full year of 2023 increased 11.99% year on year. After deducting the impact of impairment of goodwill, profit was achieved, improving year on year. Status of its main sectors: (1) The semiconductor business continues to lead the industry, with obvious advantages in the automotive and industrial sectors. The semiconductor sector achieved revenue of 15.226 billion yuan in the full year of 2023, with a gross profit margin of 38.59% and net profit of 2,426 billion yuan, of which revenue from the automotive sector accounted for 62.8%, an increase of 22.95% over the previous year. 24Q1 achieved revenue of 3.42 billion yuan, gross profit margin of 31.0%, and net profit of 520 million yuan. In the long run, trends such as electrification, digitalization, automation, and green energy will still drive the growth of the semiconductor market, and the development of artificial intelligence (AI) will accelerate the growth of the semiconductor market. (2) Significant improvement in ODM business. For the full year of 2023, the ODM business achieved revenue of 44.315 billion yuan, a year-on-year increase of 11.99%, gross margin of 8.37%, and a net loss of 447 million yuan (after deducting the impact of goodwill impairment of 494 million yuan, the ODM business achieved profit in 2023, a year-on-year improvement). The 24Q1ODM business achieved revenue of 12.42 billion yuan, gross margin of 3.0%, and net loss of 350 million yuan. In terms of notebook computers, the increase in new products from selected overseas customers led to a rapid year-on-year increase in revenue.

In the semiconductor business, automotive semiconductors have obvious advantages and continue to lead the industry. 1) Short-term performance was under pressure. The semiconductor business achieved revenue of 15.226 billion yuan in 2023, a year-on-year decrease of 4.85%, net profit of 2,426 billion yuan, and gross margin of 38.59%. 24Q1 achieved revenue of $3.42 billion, net profit of $520 million, and gross margin of 31.0%. 2) The automotive sector contributes major revenue, and the rapid development of artificial intelligence may help the semiconductor market grow. In 2023, revenue from the automotive sector reached 62.8%. We have established long-term and stable partnerships with leading car tier 1 and automakers, and are rapidly expanding the range of products for new energy vehicles. In the long run, trends such as electrification, digitalization, automation, and green energy will still drive the growth of the semiconductor market, and the development of artificial intelligence (AI) will accelerate the growth of the semiconductor market. 3) Accelerate iteration and launch many new products, and the IoT field is expected to bring new growth. The company continues to invest in research and development.

On the basis of iterative upgrades of existing products to launch new products, we continue to develop new products such as high-power discrete devices (IGBT, SiC, and GaN) and modules, analog IC combinations, power management ICs, and signal conditioning ICs to meet the growing market demand for high-performance, high-power products, and continue to provide a driving force for future business growth with high-ASP products. Furthermore, in 2023, the Dutch government approved the acquisition of NOWI for the company's semiconductor business, which will give the company new room for growth in IoT applications. 4) Continuously expand production capacity and improve efficiency. The company's factory in Hamburg, Germany, is the world's largest small signal and bipolar discrete device fab, and will continue to expand production capacity in 2024, including new production lines for innovative products such as GaN and SiC. Manchester Fab in the UK, Cabuyao in the Philippines, and Hibiscus Packaging Factory in Malaysia are being upgraded to comprehensively improve automated production capacity and meet the needs of global customers with higher efficiency and updated processes; the Shanghai Lingang 12-inch automotive-grade fab factory invested by the company's controlling shareholder has introduced products, has obtained ISO certification and automotive-grade IATF16949 compliance certification, and is progressing well. After mass production, it will become an important source to support the company's semiconductor production capacity expansion.

ODM leaders are deeply tied to leading customers. Focusing on the “artificial intelligence +” strategy, revenue achieved year-on-year growth in 2023. Overseas customers in the 24Q1 laptop ODM business increased new products, driving rapid revenue growth. 1) Revenue increased year-on-year in 2023. Revenue in 2023 was 44.315 billion yuan, up 11.99% year on year; net loss was 447 million yuan (after deducting the impact of goodwill impairment of 494 million yuan, ODM business achieved profit in 2023, year-on-year improvement), and gross margin was 8.37%. 24Q1 revenue was $12.42 billion, net loss of $350 million, and gross margin of 3.0%. 2) The synergy effect continues to be upgraded and resource allocation is integrated. The company's semiconductor business previously adopted the management model of the world's top 500 enterprises. The product integration business is a management model that Wingtai itself rapidly iterates and evolves according to industry development. Combining the advantages and characteristics of the two business segments, it launched a new management model Deep Dive to enable the continuous development of various businesses in terms of management, operation, and innovation. 3) Expand new orders and promote new business growth around the “artificial intelligence +” strategy. After the past two years of investment and development, the company has now successfully expanded from a single mobile phone ODM business to multiple business fields such as mobile phones, tablets, laptops, IoT, smart hardware, automotive electronics, etc., successfully opening up breakthroughs in many new fields and achieving all-round breakthroughs and progress. In the mobile phone business, the company has successfully developed a number of European and North American operator customers, and is jointly developing AI phones with overseas customers, laying a good foundation for expanding the company's capabilities in the field of AI mobile phones. Currently, the company is actively assisting more customers to popularize AI in mid-range and low-end phones. In the notebook business, the company has become one of the important suppliers for the manufacture of notebook computers for specific overseas customers. Relevant AI PCs produced by the company in cooperation with customers began to be sold globally in early 2024. The company will further strengthen R&D and production capacity support with overseas customers to promote the continuous growth of related projects. In the home appliance business, the company successfully developed small household appliance giant customers around the world, successfully opened up breakthroughs in segments such as hair dryers, and further raised the level of international intelligent manufacturing. Automotive electronics business. The company's automotive electronics business will gradually expand along the three major automotive product lines. One is in-car touch screens, including rear screens, the second is ADAS (Advanced Driver Assistance), and the third is intelligent in-vehicle terminals in connected vehicle systems. In-vehicle smart cockpit products have been mass-produced and supplied to leading smart car customers, and product technology innovation is currently being strengthened to develop more customers. The server business is currently progressing smoothly with various product projects. It is expected to achieve rapid growth based on the resource advantages of international short video, e-commerce and other Internet customers, as well as operators.

Investment advice: Affected by macroeconomic and other factors, demand for semiconductors in Europe, America and other regions is weak. Affected by sluggish demand in the consumer electronics market, the company's new project product prices are low, and due to the cyclical impact of the upstream industry chain, some raw material prices and factory labor costs have increased, leading to an increase in product costs and manufacturing costs. We lowered our profit forecast. It is estimated that in 2024/2025, the company's net profit to mother will be lowered from 40.00/5.03 billion yuan to 14.48/2,344 billion yuan. It is expected to achieve a net profit of 3.479 billion yuan to maintain the company's “buy” rating.

Risk warning: new applications and new product expansion fall short of expectations; risk of worsening competitive environment; supplier expansion falls short of expectations