Incident: Goertek Co., Ltd. announced on June 28 that it plans to adjust the performance assessment indicators corresponding to the current long-term incentive plan. The original target was that 2024-2026 revenue should not be less than 106.4/129.8/154.9 billion yuan, respectively. On top of this, additional or targeted net profit to mother for 2024-2026 would increase by no less than 100%/140%/180% compared to 2023, respectively, corresponding to net profit to mother for 2024-2026 not less than 2.18/2.61/3.05, respectively billion yuan.
The equity incentive target was adjusted and implemented, demonstrating the company's confidence in profit. The company revised the original equity incentive assessment index. The new indicator is that net profit due to mother in 2024-2026 increased by no less than 100%/140%/180% compared to 2023, respectively, corresponding to net profit to mother of not less than 2.18/2.61/3.05 billion yuan in 2024-2026, respectively.
The new profit assessment target shows the company's confidence in repairing and releasing its own profitability. We believe that with the support of factors such as the company's cost reduction and efficiency improvement, and the recovery of the XR industry, profits will also be steadily recovered from quarter to quarter. Specifically, the company's 24Q1 gross margin and net margin were 9.20% and 1.89%, respectively. There was a certain increase over the same period last year, and the profit repair logic is expected to be verified. This adjustment fully motivates the core team to pay attention to the profitability of the business. At the same time, it is conducive to attracting and retaining outstanding management talents and business backbone, improving the cohesion of the company's employees and the company's competitiveness, and ensuring long-term stable development.
Explore the bottom of the XR industry and focus on AR glasses supported by AI. According to Wellseen data, MetaQuest's sales volume in '23 was 541w units, down 32% year on year. We believe that the decline was partly due to the lack of XR content terminals and a lack of motivation for consumers to switch. In addition, higher product prices also had a certain impact. Looking ahead to 24, the number of leading “players” in the XR industry will gradually increase, driving overall recovery; Meta, the company's leading customer, is expected to release a low-cost version of Quest in '24, driving both revenue and profit recovery in the smart hardware sector. Furthermore, according to reports such as TheInformation and Business Insider, Meta will also unveil its first AR glasses at this year's Connect conference, and the company said that AR+AI has begun to converge and integrate. In the future, AI technology represented by big language models is expected to help AR become a new AI terminal.
Profits were gradually restored, and the product layout was further improved. The company adheres to the product strategy of “precision components+intelligent hardware”. The main products of intelligent acoustic devices and hardware include TWS headsets, smart speakers and VRARs, smart wearables, and game consoles. Demand for consumer electronics terminals was insufficient in '23, and shipments of smart hardware such as XR declined, leading to changes in the business structure (the share of smart hardware revenue with low gross margin increased in the short term). This affected comprehensive profit will increase along with the recovery of shipments in the XR industry and the restoration of major acoustic customer relationships. In addition, the company is actively expanding automotive electronics, and completed the 100% equity acquisition of Yuguang Technology in 23Q4, strengthening its layout in the field of micro-nano optical devices and helping the development of precision optical devices and other businesses.
Investment advice: The company's profit level is gradually recovering. We expect the company's net profit to be 2.412/3.321/3.944 billion yuan in 24-26, corresponding to the current PE price of 28/20/17. The company is an AR/VR leader, and the layout is perfect to maintain the “recommended” rating.
Risk warning: VR/AR shipments fall short of expectations, industry competition intensifies, and customer verification falls short of expectations.