Key points of investment:
Incident: In 2023, the company achieved operating income of 61,213 billion yuan (YoY +5.40%), net profit attributable to mother of 1,181 billion yuan (YoY -19.00%), and net profit of non-return to mother of 1,127 billion yuan (YoY -28.58%).
1Q24 achieved revenue of 16.247 billion yuan (YoY +12.62%); net profit attributable to mother of 143 million yuan (YoY -68.82%); net profit after deducting non-attributable net profit of -87 million yuan (YoY -121.82%).
Anshi Semiconductor: Due to the cyclical impact of the semiconductor business, the advantages of automotive semiconductors are obvious. In 2023, the company's semiconductor business achieved revenue of 15.226 billion yuan, a year-on-year decrease of 4.85%, gross profit margin of 38.59%, and realized net profit of 2,426 billion yuan, a year-on-year decrease of 35.29%. In 2023, the company's semiconductor business accounted for 62.8%, 6.9%, 21.7%, 4.8%, and 3.8% of revenue from the automotive, mobile and wearable devices, industrial and electricity, computer equipment, and consumer sectors, respectively. The automotive sector, including electric vehicles, remains the main source of the company's semiconductor revenue stream. In 2023, the company further increased investment in R&D, and continued 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.
Product integration: optimize business management and lay out new future developments. In 2023, the company achieved revenue of 44.315 billion yuan, a year-on-year increase of 11.99%, gross margin of 8.37%, and net loss of 447 million yuan. After deducting the impact of goodwill impairment of 494 million yuan, the product integration business achieved profit in 2023, which improved year-on-year. Due to (1) early investment in mass production of laptop products; (2) the price of new mobile phone product projects is lower due to low demand in the consumer electronics market; (3) due to the cyclical impact of the upstream industry chain, prices of some raw materials increased, and factory labor costs increased, leading to an increase in product costs and manufacturing costs, which led to a decline in product integration business performance in the fourth quarter.
Other business: Discontinuation of production of optical module products for specific customers. In 2023, the company's optical module business had a net loss of 719 million yuan. The main reason for the loss in this business: due to the company's cessation of production of optical module products for specific customers, an estimated asset impairment reserve of 295 million yuan in 2023 (including 30 million yuan in fixed assets, 78 million yuan in intangible asset impairment reserves, and 187 million yuan in assets held for sale), asset disposal losses of 226 million yuan, and the total impact of the transfer of related personnel placement costs and deferred income tax transfers was 193 million yuan, which reduced the total net profit of the company in 2023 (reducing the company's 2023 merger) (The statement represents a net profit of 500 million yuan for the mother). We expect that the cessation of production of specific customer products in the optical module business will have little impact on the company's overall business, will not affect the company's other product line business for specific customers, nor will it affect the company's other optical module customer business.
Profit forecasts and investment recommendations. We believe that the company has formed a development pattern supported by ODM, semiconductor two-wheel drive, and optical modules. Anshi's semiconductor industry has a stable position. Combined with future capacity expansion and steady growth, the product integration business is expected to experience a rebound in performance after the new product cultivation period, and the optical module business will continue to promote new projects. We expect the company to achieve EPS of 1.60, 2.11, and 2.67 yuan respectively in 2024-2026. We will give 2024 PE 22-25X, corresponding to a reasonable price range of 35.2-40.0 yuan/share, and give it a “superior to market” rating.
Risk warning: Smartphone market demand falls short of expectations, ODM industry competition intensifies, and demand for optical modules falls short of expectations.