1H24 results and 1-3Q24 forecast are in line with our expectations
Lixun Precision announced 1H24 results: operating income of 103.598 billion yuan, up 6% year on year; net profit to mother of 5.396 billion yuan, up 24% year on year. It is within the previous performance forecast range, which is in line with our expectations.
Corresponding to the 2Q24 quarter, Lixun achieved revenue of 51.191 billion yuan, an increase of 7% over the previous year, and net profit to mother of 2.925 billion yuan, an increase of 25% over the previous year.
At the same time, Lixun released its 1-3Q24 performance forecast. The company expects 1-3Q24 to achieve net profit of 8.849-9.218 billion yuan, a year-on-year increase of 20-25%. Corresponding to the 3Q24 single quarter, Lixun expects to achieve net profit of 3.453-3.822 billion yuan, an increase of 14-27% year over year, which is in line with our expectations.
By business, 1H24 Lixun: 1) Consumer Electronics achieved revenue of 85.548 billion yuan, a year-on-year increase of 3.25%, and gross margin increased 0.98ppt to 10.49%. We believe that the main reason is the continuous development of the consumer electronics product category, compounding the increase in revenue share of non-A customers, driving the optimization of the gross margin structure; 2) The computer/automobile/communications business achieved revenue of 4.379/4.756/7.465 billion yuan respectively, up 4.57/48.30/ 21.65% year-on-year. We believe that the rapid growth of Lixun Auto's business is mainly due to the company's continuous introduction of related products such as wiring harnesses, connectors, smart cockpits, and autonomous driving to customers, achieving revenue growth. We believe that the communications business is growing rapidly, mainly due to Lixun's comprehensive product layout in the fields of optics, electrical connections, heat dissipation and power supply, which has been recognized by domestic and foreign customers. The rich product categories are combined with customer development to drive revenue growth.
Development trends
The trend of AI terminal upgrades is clear, and Lixun Consumer Electronics continues to benefit. With the release of Apple and Google's AI operating systems, we believe the AI terminal era has begun, and hardware is expected to be upgraded in many fields. Among them, we expect the iPhone 16/17 series to welcome significant innovation in more than 10 components and modules. As a core supplier of Apple components, modules and assemblies, Lixun is expected to take the lead in benefiting from Apple terminal switching and ASP upgrading opportunities driven by AI, and accelerate the growth of related businesses with its comprehensive product layout advantages.
Furthermore, we are optimistic that as multi-modal AI matures, more new forms of AI terminals may appear in the future.
Lixun has been cooperating closely with non-A consumer electronics customers for a long time. With the company's JDM, ODM and OEM capabilities, it is expected to continue to benefit from the development opportunities of new terminals such as AI phones and wearables, and drive the continuous growth of the consumer electronics business.
Profit forecasting and valuation
We keep Lixun's profit forecast for 2024/25 unchanged. The 2024/25e EPS is 1.95/2.34 yuan, and the current stock price corresponds to 2024/25e 19.5/16.2x P/E, respectively. We maintain our ratings to outperform the industry. Considering that both Apple and Google have released AI-based terminal operating systems, the market's acceptance of AI terminal trends has increased, and sector valuations have moved upward. We raised Lixun's target price by 31% to 47.0 yuan, corresponding to 2024/25e24.2/20.0x P/E, which has room for growth of 24% compared to the current one.
risks
The development of AI terminals fell short of expectations; the development of business products and customers such as Lixun Communications and automobiles fell short of expectations.