Incident: The company released its 2023 annual report and 2024 quarterly report. In 2023, the company's revenue was 33.651 billion yuan, +6.56% year over year; net profit to mother was 1,965 billion yuan, -17.05% year over year; after deducting non-net profit of 1,615 billion yuan, -24.08% year over year. The 24Q1 Company's revenue was 7.745 billion yuan, +18.94% YoY, -30.54%; net profit to mother was 289 million yuan, -38.65% YoY, -54.21% YoY; after deducting non-net profit of 261 million yuan, -6.71% YoY, -54.78% YoY.
Phased losses in the LED business dragged down profits, and PCB+ automotive electronics grew steadily: the pressure on the company's profit side in '23 was mainly due to production capacity utilization rates and sales prices of LED and other photoelectric display devices and modules falling short of expectations, resulting in phased losses. In 2023, the company's gross profit margin was 15.18%, -2.42pct; the net profit margin was 5.84%, -1.66pct. 24Q1 gross profit margin 13.60%, YoY -1.20pct, month-on-month -4.03pct; net profit margin 3.74%, YoY -3.50pct, -1.93pct month-on-month. Looking at business in '23, 1) Electronic circuit revenue was 23.261 billion yuan, +6.61% year-on-year. Gross profit margin 20.79%, -0.22pct year over year. In the face of the overall weakness of the consumer electronics market, the company's PCB business has shown good resilience and competitiveness. 2) LED display device revenue was 1.119 billion yuan, -29.24% year over year, mainly affected by the decline in market demand for small-pitch LED displays. The gross profit margin was -26.67%, compared to -35.48pct, mainly due to a decline in market demand, a decline in production volume, insufficient utilization of the company's production capacity, and an increase in fixed unit costs. At the same time, the unit sales price decreased in 2023 due to increased market competition. 3) Touch panel and LCD module revenue was 4.862 billion yuan, +42.88% year-on-year. Gross profit margin 1.77%, +0.47pct year over year. 4) Precision component revenue was 4.162 billion yuan, -8.45% YoY. The gross profit margin was 10.71%, -4.98pct year on year, mainly due to falling demand in the communications equipment industry. In terms of expenses, the sales/management/R&D/finance rate in 2023 was 1.08%/2.84%/3.45%/0.56%, with year-on-year changes of -0.04/+0.26/+0.47/ -0.07pct, respectively.
AI has driven a sharp rise in PCB business volume and price, and is optimistic about A client product expansion+share increase: 1) On the soft board side, the company mainly supplies system boards to A customers, and has been involved in module boards in the past two years. As the company is expected to introduce new models and headsets from customer A in the future, new product numbers and increase in share, we are optimistic that the soft board business will still have a lot of room for growth in client A. According to IDC forecasts, global AI phone shipments will reach 170 million units in 2024, accounting for 15% of smartphone shipments. Among them, the number of new-generation AI phones shipped in the Chinese market in 2024 is 37 million units, and will reach 150 million units in 2027, with next-generation AI phones accounting for more than 50% of the market share. AI phones place higher demands on PCBs on the hardware side, driving an increase in the number of layers of soft boards and a reduction in line width and line spacing. Benefiting from the hardware upgrade trend brought about by AI on the end side, we are optimistic that the company's soft board business is expected to rise rapidly in volume and price. 2) On the hard board side, the company's products mainly focus on HDI and high multi-layer boards, which are used in communication, servers, automobiles and other related fields. The telecommunications business has experienced a decline in revenue due to a slowdown in downstream investment, and the company is actively embracing AI servers. On the automotive side, demand for PCBs is expected to soar as the penetration rate and intelligence of new energy vehicles continue to increase.
The NEV business continues to grow at a high rate, and is expected to release production capacity and contribute profits: The company's NEV business covers the three major sectors of electronic circuits, optoelectronic displays, and precision manufacturing. Currently, the products it can provide to NEV customers include electronic circuit products (FPC and hard boards), automotive displays, and functional structural products (heat dissipation, battery structural parts, body parts, and cases). The company's new energy business revenue in '23 was 6.361 billion yuan, +168.39% year-on-year. 24Q1 new energy business revenue of 1,829 billion yuan, +56.46% year-on-year.
In January 2023, the company completed the acquisition of Suzhou Jingduan to further expand the automotive display module business.
The company actively lays out around its core customers, including international customers and new domestic car builders, and has achieved good results. At present, the technology and product lines of the company's layout have been highly recognized by customers, and the expected product lines have basically received orders. In terms of production capacity, the NEV Parts Kunshan base was officially put into operation in March '24. It is mainly engaged in the NEV lightweight parts project. Currently, production capacity is climbing, and profits have not yet been released. With the gradual increase in production line capacity utilization, the orderly release of production capacity, and the successive delivery of in-hand orders, the company's new energy business is expected to continue to grow at a high rate.
Maintaining a “buy” rating: The company continues to focus on the dual core strategic line of “consumer electronics+new energy”, and strives to develop the new energy industry on the basis of steadily improving consumer electronics. We believe that in terms of PCB business, we are optimistic that the company will expand from system boards to module boards on the A client side, and the AI-driven PCB business volume and price will rise sharply. In terms of the NEV business, the company fully embraces T customers and continues to support T customer R&D. The development of various core products is expected to accelerate, and the value of bicycles will continue to increase. With the orderly release of production capacity, the NEV business is expected to rebuild Dongshan in the future. In terms of LED and touch displays, the company will continue to narrow its losses sequentially by strengthening internal management. It plans to increase capacity utilization and improve operating performance through continuous improvement of the product structure and cooperation with some major international manufacturers, and the profit situation is expected to gradually improve.
The company's net profit for 2024-2026 is estimated to be 2,340 billion yuan, 2,892 billion yuan, and 3.417 billion yuan. EPS is 1.37 yuan, 1.69 yuan, and 2.00 yuan respectively, and the corresponding PE is 12X, 9X, and 8X respectively.
Risk warning: risk of macroeconomic fluctuations, downstream demand falling short of expectations, risk of relative concentration of major customers, risk of exchange rate fluctuations.