Performance review
1H23 performance is below our and market expectations.
Qiu Ti Technology announced 1H23 results: revenue fell 23% year-on-year to 5.48 billion yuan, and home net profit fell 87% year-on-year to 21 million yuan, lower than the company's previously announced profit warning range (1H23 performance fell 60-80% year-on-year) and below our previous forecast of 168 million yuan. The short-term pressure on the company's first-half results in the first half of the year is mainly due to: 1) the demand in the global mobile phone market of 1H23 is still weak, and the company shipped 167 million mobile phone modules in the first half of the year, down 21% from the same period last year, which is a drag on capacity utilization and affects the profitability of the main business; 2) the fluctuation of the exchange rate of RMB against the US dollar increases the material cost of the company denominated in US dollars, which has a negative impact on the gross profit margin. 3) the camera module in the non-mobile phone field is still not profitable. Looking forward to the second half of the year, the company will increase the proportion of shipments of modules above 32MP from 35% to 40% in 2023, reflecting the company's preference for high-end product structure. We believe that it will be conducive to the recovery of the profitability of mobile phone modules. Investors are advised to wait for the turning point of the mobile phone industry and the potential recovery trend of the company.
Trend of development
The unit price of mobile camera module has gradually stabilized, and the upgrading of high-end product structure is expected to stabilize profit performance. Looking back on 1H23, although the company's mobile camera module shipments fell 21% year-on-year due to mobile terminal demand, the unit price of mobile camera module fell only 3% year-on-year, much narrower than the year-on-year decline of 1H22/2H22 unit price. Considering that Qiu Ti Technology is one of the major enterprises in the mobile phone module industry, its price trend reflects the improvement of internal competition in the industry. Looking forward to the second half of the year, we predict that shipments of Qiu Ti 2H23 camera modules will reach 187 million, a year-on-year decline of 9%. At the same time, based on the company's better product structure in the second half of the year, we expect the gross profit margin of the company's mobile camera module to increase by 0.8 percentage point to 4.4%. We are optimistic that the company, as one of the industry's leading CCM vendors, will be the first to benefit from the industry repair trend when the potential demand inflection point is approaching.
The business of vehicle module is advancing steadily, and the second growth curve is worth looking forward to. Shipments of camera modules used in smart cars by the company's 1H23 increased by more than 100 per cent year-on-year. We are optimistic that the company will actively expand its customers in the field of automotive modules, and continue to gain industry recognition in the future by virtue of leading packaging processes such as COB.
Profit forecast and valuation
The company's current share price corresponds to 25.6 times 2023 and 10.6 times 2024 earnings. Considering that the relatively weak global demand for mobile phones will put short-term pressure on the company's capacity utilization, we have lowered the company's 2023 / 2024 profit forecast by 63% to 1.27299 million yuan. Based on the company's long-term layout in cars and ARVR Optics, we maintain an outperform industry rating, but as the current market demand for 2H23 phones is still at a wait-and-see stage, we lower our target price by 39.4% to HK $4.00, corresponding to 31.4 times 2023 price-to-earnings ratio and 13.0 times 2024 price-to-earnings ratio, which is 22.7% higher than the current stock price.
Risk
The global mobile phone terminal continues to be weak; the company's car customer expansion is not as expected.