Core views

In the first three quarters of 2024, the company achieved operating income of 0.574 billion yuan, a year-on-year increase of 14.09%; net profit to mother was 0.088 billion yuan, an increase of 8.12% over the previous year. Among them, mobile smart terminal vision solution revenue was 0.485 billion yuan, up 6.54% year on year; Q3 single quarter revenue was 0.153 billion yuan, up 6.79% year on year, up 6.79% year on year, up from the Q2 growth rate (+4.20%); smart driving and other IoT smart device vision solutions revenue was 0.08 billion yuan, up 108.32% year on year, benefiting from successive shipments of targeted projects in the previous period, and continued to achieve high growth. We believe that with downstream smartphone recovery and camera algorithm upgrades and iterations, smart car business targeted shipments, and AI commercial solutions are expected to be implemented on a large scale, the company's performance is expected to continue to grow. The revenue for 2024-2026 was 0.815/0.99/1.181 billion yuan respectively, up 21.59%/21.49%/19.32% year on year, respectively, and net profit due to mother was 0.128/0.167/0.197 billion yuan, up 44.97%/30.22%, respectively 17.96%, corresponding to PE 111/85/72 times, maintaining the “buy” rating.

occurrences

ArcSoft announced its 2024 three-quarter report. In the first three quarters of 2024, the company achieved operating income of 0.574 billion yuan, a year-on-year increase of 14.09%; realized net profit of 0.088 billion yuan, an increase of 8.12% over the previous year; and realized net profit without deduction of 0.078 billion yuan, an increase of 3.51% year-on-year.

In the third quarter of 2024, the company achieved operating income of 0.193 billion yuan, an increase of 18.54% year on year; realized net profit of 0.027 billion yuan, a year-on-year decrease of 15.14%; realized net profit deducted from non-mother 0.024 billion yuan, a year-on-year decrease of 22.37%.

Brief review

The mobile phone business is picking up, and the smart driving business is growing at an accelerated pace. In the first three quarters of 2024, the company achieved operating income of 0.574 billion yuan, a year-on-year increase of 14.09%; net profit to mother was 0.8.8 billion yuan, an increase of 8.12% over the previous year. By business, the company's mobile smart terminal vision solution revenue was 0.485 billion yuan, up 6.54% year on year; Q3 single quarter revenue was 0.153 billion yuan, up 6.79% year on year, up 6.79% year on year, up from Q2 growth rate (+4.20%); smart driving and other IoT smart device vision solutions revenue was 0.08 billion yuan, up 108.32% year on year, and Q3 single quarter revenue was 0.036 billion yuan, up 129.83% year on year, benefiting from the previous period Targeted projects are being shipped one after another, and growth is further accelerated. With the simultaneous development of the company's mobile phone and smart driving business, the company's operations are expected to continue to be optimized.

Gross margin declined slightly, and R&D investment continued to increase. In the first three quarters, the company's overall gross margin was 90.49%, down 0.65pp year on year, further increasing the share of the automobile business with relatively low gross margin; the sales/management/finance expense ratios were 16.68%/11.71%/-7.21%, respectively, with year-on-year changes of +0.17/-2.31/+1.15pp. Apart from financial expenses being affected by reduced interest income, overall cost control was good; R&D expenses in the first three quarters reached 0.302 billion yuan, up 17.96% year on year, and the R&D expenses ratio reached 52.57%, reverse market expansion Demonstrates the company's confidence.

Q3 Operating cash flow has improved markedly. The company's net operating cash flow decreased by 98.80% in the first three quarters compared to the same period of the previous year, mainly due to the company's launch of a new mobile phone algorithm “smart superdomain integration” product in 23, and mobile phone manufacturers carried out prepayment operations, which led to a significant decrease in net cash flow during the same period; the net operating cash flow of a single Q3 company was 0.067 billion yuan, an increase of 211.43% over the previous year, and significant improvements have been achieved.

Investment advice: With downstream smartphone recovery and camera algorithm upgrades and iterations, smart car business targeted shipments, and AI commercial solutions are expected to be implemented on a large scale, the company's performance is expected to continue to grow. The revenue for 2024-2026 was 0.815/0.99/1.181 billion yuan respectively, up 21.59%/21.49%/19.32% year on year, respectively, and net profit of 0.128/0.167/0.197 billion yuan, up 44.97%/30.22%, year on year, respectively 17.96%, corresponding to PE 111/85/72 times, maintaining the “buy” rating.

Risk analysis

(1) Downstream smartphone recovery falls short of expectations: The company's mobile smart terminal vision solution business accounted for 84.49% of revenue in the first three quarters of 2024, and this business was significantly affected by the boom in the downstream smartphone industry. If the recovery of the smartphone industry falls short of expectations or the share of high-end phones falls short of expectations, or has an adverse impact on the company's performance; (2) Competition in the visual artificial intelligence market has intensified: many companies have entered the visual artificial intelligence market, facing rapid iteration of technology and increasing market difficulty, if the company is unable to maintain an advantage in competition with other manufacturers, or will face the risk of declining performance; (3) AI empowerment falls short of expectations: the company actively invests in AI applications, and R&D expenses continue to rise, respectively, 2.70/2.88/3.6 0.3 in 2021-2023 billion yuan.

If the corresponding investment does not yield the expected return, the company's revenue may be affected.