Conclusions and recommendations:
The full year of 2023 was affected by industry sentiment, and the company's performance was under heavy pressure. Recently, due to the gradual recovery of downstream demand for the Internet of Things, the company's 24Q1 net profit rebounded to a loss of 140%, and there is still room for significant improvement as the industry recovers further. In the future, with the rise of emerging industries such as AIoT, it is expected to become a new growth engine for the company. Considering that the previous stock price adjustments were strong, the valuation is currently low, and a “buy” suggestion is given.
2023 Q4 performance improved month-on-month, and 2024Q1 net profit reversed losses: Since the fourth quarter of 2023, the IoT industry's cold winter has gradually passed, benefiting from industry recovery, and the company's performance has improved. 23Q4's revenue was 3.89 billion yuan, up 12.72% month-on-month; net profit to mother was 110 million yuan, up 11.7% month-on-month; 24Q1's revenue was 3.95 billion yuan, up 26.1% year on year, and net profit to mother was 55 million yuan, which significantly reversed losses from the same period last year - 135 million yuan. In addition, the company's cost control results were remarkable. The 24Q1 sales/management/R&D expense ratios were -0.94/-0.66/ -4.39 percentage points year-on-year, respectively. Following the further recovery of the industry, combined cost reduction and efficiency continued to improve, and there is still room for significant improvement in the company's performance in the future.
The recovery trend of the IoT industry is remarkable: the IoT industry is now basically nearing the end of inventory removal, and global downstream demand is gradually recovering. Among them, scenarios such as automotive and AIoT are booming. According to Counterpoint, due to declining demand, global IoT module shipments declined for the first time in 2023, down 2% year on year. It is expected that by 2024, with the normalization of inventory levels and increased demand in smart meters, POS, automobiles, etc., the module market is expected to resume growth in the second half of the year; with the application of 5G and other technologies, the market is expected to grow significantly in 2025. As a leader in IoT modules, the company currently ranks first in the world in IoT module shipments, and is expected to significantly benefit from industrial recovery in the future.
AIoT technology is gradually rising, and the company has sufficient technical reserves: Currently, attention from the global AI-related industry is rapidly rising, and AIoT formed by AI+ edge computing technology is gradually rising, becoming the next frontier for the IoT industry. The company has rich experience in edge computing applications. In addition, it is actively exploring AI technologies such as image recognition, speech recognition, and natural language processing. Through algorithm optimization and model training, the company quickly combines AI technology with downstream IoT requirements, and launched a 48TOPS integrated computing power module in 2023, suitable for industrial and consumer applications requiring high processing power and multimedia functions. It is expected to launch related products in the future and continue to enjoy a new round of growth momentum brought about by the AI revolution.
The automotive sector has received large orders from overseas, and is expected to increase its performance in the next few years: In April 2024, the company issued an announcement and received a fixed letter from a world-renowned auto parts supplier to select the company as its automotive module supplier. According to the customer's plan, the targeted project is expected to gradually begin mass production delivery in 2026, with a delivery period of 2026 to 2033. The customer estimated the total sales amount over the life cycle of the project was approximately US$742 million to US$1,309 million. We believe that the relevant orders will begin to enhance the company's performance in 2026, and also represent the continuous verification of the company's technical strength in the automotive sector.
Profit expectations: We expect the company's net profit for 2024-2026 to be 598 million, 721 million yuan, and 888 million yuan respectively; YOY will be +560%, +20%, and +22%, respectively; EPS will be 2.26 yuan, 2.72 yuan, and 3.2 yuan respectively. The current stock price corresponds to the 2024-2026 P/E of A shares to be 20/17/14 times, maintaining the “buy” proposal.