occurrences
On April 29, the company released its 2024 quarterly report. In Q1 2024, the company achieved operating income of 1,289 million yuan, +51.13% year over month, -11.21% month on month; realized net profit of 30 million yuan, +123.35% year on year, +2137.15% month on month; realized net profit without return to mother of 12 million yuan, +108.84% year on year, -87.24% month on month; gross sales margin was 25.26%, -13.1 pcts year on month, -0.87 pcts month on month.
On April 25, the company released its 2023 annual report. For the full year of 2023, we achieved operating income of 4.697 billion yuan, -20.97% year on year; realized net profit of 48 million yuan, -89.01% year on year; realized net profit deducted from mother of 62 million yuan, -82.57% year on year; achieved gross sales margin of 29.57%, -0.91 pcts year on year. Looking at Q4 alone, the company achieved operating income of 1,452 billion yuan, +5.78% year over month; realized net profit of 1.4807 million yuan, +98.73% year on year, -102.04% month on month; net profit without return to mother was 94 million yuan, +148.30% year on year, +199.41% month on month; gross sales margin was 26.13%, +1.04pcts year on month, +0.52 pcts month on month.
Key points of investment
The sharp increase in Q1 profit turned a year-on-year loss into a profit, and the expansion of high-pixel CIS products with a single-chip architecture was smooth. The company's Q1 profit increased sharply year-on-year and turned a loss into a profit, mainly due to the company's smooth expansion of high-pixel products based on a single-chip architecture. Among them: 1) 32 megapixel products have been mass-produced and shipped in many brands; 2) 50 megapixel products have been shipped normally in brand phones, and 0.7 μm 50 megapixel products have already been shipped at the 100K level. It is expected that 2024Q2 will reach scale, and 2024Q3 will be shipped in large quantities. The successful development of 50 megapixel products raised the company's product positioning from the traditional 2 million to 8 million pixels to 50 million pixels or more. The cumulative revenue of Q1, which is 13 million or more pixel products, has contributed more than 200 million yuan. In addition, Q1 saw a decrease of about $80.6434 million in management expenses for fund-raising projects, and a reduction of 64.783 million yuan in inventory prices due to consumer market recovery. After the completion of the fund-raising project, the overall gross margin for Q1 was 25.26% when depreciation was taken into account. Looking at 2023, the company's mobile CIS/non-mobile CIS/DDIC business accounted for 47.80%/25.79%/26.41%, respectively. Due to the impact of multiple domestic and international macroeconomic factors such as geopolitics and global inflation, along with the effects of low demand in the consumer electronics market and low prosperity in the mobile phone industry, shipments of the company's traditional dominant products declined, leading to a decline in revenue throughout the year. However, the advantages of the company's self-developed differentiated product, single-chip integrated technology, gradually became prominent, and high-pixel CIS grew rapidly. In 2023, the release of a new machine was driven by a combination of inventory adjustments from machine manufacturers. The annual gross margin of the single-phone CIS business increased by 3.88 pcts year on year, and the cost decreased by 46.62% year on year.
Shipments of high-end CIS mobile phones increased steadily, with mass production and shipment of 13,000/1600/32 megapixel CIS phones. Among them, the CIS mobile phone product line achieved revenue of nearly 1,900 million yuan in 2023, and the 13 megapixel product line and above achieved revenue of nearly 342 billion yuan, contributing a total revenue of 2,242 billion yuan.
Multiple drives. The company's single-chip integration technology has been recognized by the market, and high-pixel CIS products for mobile phones are rapidly expanding, and it is also committed to developing high-performance security and automotive electronics CIS. The display driver chip business already has AMOLED-related reserves. In 2023, the company's mobile CIS/non-mobile phone CIS/display driver chip business revenue was 22.42 billion yuan, 12.10/1,239 billion yuan, respectively; gross margins were 31.42%/35.25%/20.41%, respectively, +3.88pcts/+2.19pcts/-19.95pcts.
1) Mobile CIS: The company's high-pixel CIS product portfolio layout is getting better and better. In 2023, the company achieved mass production and shipment of 1300/1600/32 megapixel CIS products. Among them, the 32 megapixel product uses the GalaxyCellTM 0.7 μm process, which is Gecko's latest patented FPPI technology, and can achieve equivalent 1.4 μm pixel performance with the 4Cell Bayer architecture. At the same time, it also supports SHDR video recording, providing a mature high-pixel solution for high-end smartphone front camera requirements. In R&D, the company adopted an innovative single-chip integration process, which significantly improved the wafer area utilization rate of the company's products, eliminated pixel thermal noise caused by heating of the underlying logic chip, and was compatible with 1/3.1 inch camera module sizes to meet the ID design requirements of 5G phones.
Mass production and shipment of 32 million CIS provided a strong guarantee for the company to enter the high-pixel CIS market. At the same time, 50 million high-end CIS was successfully developed and successfully shipped, raising the company's product positioning to 50 million pixels and above.
2) Non-mobile CIS: The company has further improved product specifications, is committed to developing high-performance products, and officially released the GC8613, a 4K image sensor with wide dynamics and low power consumption. The pixel size is 1.5 μm. Using the company's characteristic DAG circuit architecture, it has achieved night vision full-color imaging and single-frame wide dynamic image output without artifacts. At the same time, using the company's self-developed FPPI isolation technology, the noise generated by interface defects can be reduced, which can help imaging devices achieve excellent night vision capabilities; even when running all day, power consumption can be reduced by about 40%; and the better dynamic range enables applications in smart cities, smart homes, and conference systems. In the field of automotive electronics, the company's products have made breakthroughs in the clarity of imaging effects in low light and the stability of image quality at high temperatures. The products are mainly used in driving recorders, reversing images, 360 surround view, rear view, etc., and achieved sales of over 200 million yuan in the rear equipment market in 2023. The company is working hard from the rear assembly market to the front assembly market.
3) Display driver chip (DDIC): Through a series of core technologies such as self-developed design without external components and image compression algorithms, it has covered resolutions from QQVGA to FHD+. It mainly focuses on the application of small and medium-sized displays in mobile phones, wearables, industrial control and household products. Further enhance the differentiation capabilities of DDIC products and expand applications in various smart scenarios such as smart homes, medical care, and commercial displays. LCD TDDI products have received orders from internationally renowned mobile phone brands, and the share of sales has increased markedly, and is expected to continue to grow in 2024. In addition, the company already has relevant technical reserves for AMOLED driver chip products and will launch AMOLED display driver IC products. AMOLED display driver ICs will also become an important growth point for the company in the future.
The FAB-Lite model transformation enhances competitiveness. The Lingang plant was officially put into operation at the end of 2023, marking the company's formal transition to the FAB-Lite model. By building its own 12-inch BSI wafer back-end production line, the company guarantees production capacity supply; achieves autonomous control of key manufacturing processes; meets the needs of terminal brand customers for chip customization; and also helps to integrate the company's resources on the chip design side and manufacturing side, accelerate the rate of industrialization of R&D results and enhance the company's core competitiveness, laying the foundation for future market share and expansion of advantages.
Profit forecasting
We expect the company to achieve revenue of 64.55/79.65/9.866 billion yuan in 2024-2026, and achieve net profit of 2.63/5.05/669 billion yuan. The closing price on June 14, 2024 corresponds to the company's 2024-2026 PE 132/69/52 times, respectively, maintaining a “buy” rating.
Risk warning
Downstream demand falls short of expectations; progress in product development and introduction falls short of expectations; customer expansion falls short of expectations; market competition intensifies; risk of cost fluctuations.