Based on recent industry chain tracking and the company's product shipment data, we determine that smartphone terminal recovery and optical image upgrade trends such as large surface/periscope will drive simultaneous increases in the company's mobile phone product shipments, ASP, and gross margin. The operating rate of the 24H1 mobile phone lens and camera module business has returned to normal levels, and the recovery is expected to exceed previous official guidelines. Looking at the medium to long term, we are optimistic about the growth space for new overseas mobile customers, automotive, and XR fields. In particular, we emphasize the growth and flexibility of the AR field, which we are focusing on research and development this year, in the next three years.
Covered for the first time, a “gain” rating was given.
As a leading global manufacturer of optical platforms, Shunyu leads the layout in mobile phones, automotive, AR/VR, etc.
In 2023, the company's mobile, automotive and ARVR business accounted for 66.1%/16.7%/5.9% of revenue. The 2023 results were dragged down by factors such as the global macroeconomic downturn, declining mobile phone shipments, and slowing optical innovation. Revenue was 31,681 billion yuan, -4.6% year over year; net profit of 1,099 billion yuan, -54.3% year over year; net profit after deducting non-return to mother was 898 million yuan, -59.0% year over year; and gross profit margin was 14.49%, -5.41 pct year on year.
We believe that in 2024, the recovery of the company's smartphone business is expected to surpass previous guidelines, profitability is expected to improve significantly, and there is room for medium- to long-term growth in the overseas major customer business. In 2021-2023, due to poor mobile phone demand, industrial chain inventory adjustments, and optical regulations, mobile phone revenue continued to decline year-on-year, and profitability was under pressure due to factors such as low utilization rate and competition. We judge that in the first half of 2023, the low utilization rate of the company's mobile phone lenses and camera modules was below 50%. Under vicious competition, some middle- and low-end materials were priced below the cost line. 23H2 global smartphone shipments rebounded year on year, and the industrial chain entered the inventory cycle. At the same time, the company's mobile phone business had a recovery trend and continued to improve in 2024:1) Judging from shipment volume, the company's mobile phone lens/camera module sales in January-May were +25%/+22%; 2) Product structure improvements are worth paying more attention. On the one hand, there is a clear trend of innovative upgrades such as peristemic, large image, and anti-shake in high-end models in the 23H2 industry. Active strategic adjustment As for the product structure, the company's share of high-end products will increase markedly this year, and revenue recovery will be stronger than shipments; 3) Judging from profitability, we expect the mobile phone business operating rate to return to normal levels in the first half of this year. Combined with the increase in the product structure, the profitability of the mobile phone business line will improve significantly this year. Furthermore, the company's cooperation with North American customers and Korean customers is gradually deepening, and its share and product range are constantly expanding, and it will also become a growth point for the next two to three years.
Continue to invest in the automotive and AR/VR business, and industry trends such as downstream automotive intelligence and AR+AI help grow in the medium to long term. 1) Automotive business: Platform layout for vehicle cameras, lidar, and projection products. The company's automotive lens shipment volume is the highest in the world for ten consecutive years. The camera module is expected to use integrated production capacity and the first-mover advantage on the lens side to expand its market share. At the same time, it also lays out high-growth new projects such as lidar HUDs and smart headlights, and continues to benefit from the trend of the automotive intelligence industry. 2) AR/VR: Forwardly lay out the XR field and continue to increase investment, especially in the AR field; medium- to long-term, it is expected to benefit from the XR+AI industry wave. The company has a layout in terms of display, perception, interaction, and overall equipment. Previously, the official guidelines showed +15% XR business revenue in 2024. We believe that new products from major customers are expected to drive actual revenue beyond the guidelines. It is estimated that 1 billion yuan will be invested in the AR/VR field in 2024, of which AR technology is the focus of investment. We believe that the empowerment of AI models will accelerate the development of the AR glasses industry. Optical devices account for a high proportion of the BOM cost of AR terminal equipment, and the emergence of future downstream explosives will create another growth pole for the company.
Investment advice: The company's mobile phone business is expected to benefit from the recovery in mobile phone demand in 2024 and the trend of optical imaging innovation in high-end Android models. At the same time, the product share of North American and Korean customers is expected to continue to increase, opening up room for growth in the next three years.
The integrated layout of the automotive business has obvious advantages, and automotive intelligence drives the growth of automotive lenses, camera modules, lidar, and projection display businesses. The forward-looking layout of the XR business and continuing to increase investment, especially in the AR field, is expected to achieve long-term growth along with the development of the XR market and the launch of new products from major customers. We expect the company's total revenue for 2024-2026 to be 370/419.47.4 billion yuan, net profit to mother of 19.24/30 billion yuan, corresponding EPS of 1.84/2.32/2.83 yuan, corresponding to the current stock price PE of 24.1/19.1/15.6 times, covered for the first time, giving it an “increase in weight” rating.
Risk warning: Macroeconomic risks fall short of expectations, industry competition increases risks, mobile phone demand recovery falls short of expectations, automotive and XR business progress falls short of expected risks.