Event: The company released its 2023 semi-annual report. In 2023, H1 achieved revenue of US$367 million, -9.35% year-on-year; realized net profit of US$0.18 million, -42.55% year-on-year.
The decline in customer orders put pressure on performance, and the increase in expenses during the period dragged down profits: Revenue side: The slight year-on-year decline in H1 company's revenue in '23 was mainly due to a decrease in customer A orders and pressure on tablet business revenue. According to IDC data, mobile phone shipments for Q1/Q2 and A customers in 2023 were -2.3%/-6.3% year-on-year, respectively. According to Canalys, in Q1/Q2 of 2023, customer A's tablet shipments were -17%/+2% year-on-year, respectively. Profit side: H1 gross margin was 13.87%, y-0.98pct; net margin was 4.78%, y-2.92pcts. The year-on-year decline in net interest was mainly due to the increase in expenses during the period that dragged down profits. Cost side: H1 sales/management/finance expenses were US$0.01/0.32/US$0.03 billion, respectively, with year-on-year changes of +18.04%/+8.32%/+84.27%, respectively. The sharp increase in financial expenses was mainly due to the decline in exchange earnings.
Deeply tied to A customers, optimistic about the expansion of camera module categories: H1 major customers accounted for 96.5% of revenue in '23, -3.2pcts compared to -3.2pcts. The company is the main supplier of mobile phone and tablet camera modules for customer A, and the company's performance is strongly correlated with customer A's product delivery. 1) Mobile phones: The second half of the year has entered the traditional peak season. Demand for consumer electronics has picked up and customers have released new opportunities. The company's mobile phone business is expected to benefit from demand for new products, and performance has improved month-on-month. The company has cooperated with customer A for many years. We believe that the company's camera module categories are expected to expand in the future, and the value volume and supply share of stand-alone devices are expected to increase. 2) Tablet: According to Canalys data, in Q3 of '23, 33 million tablets were shipped globally, +8% over the previous year, indicating that demand in the tablet market is beginning to show signs of recovery. We expect customer A's tablet product line to be fully updated in '24. The company's tablet business is expected to benefit from new product effects and future camera performance upgrades, and promote an increase in the ASP of the tablet camera module.
3) AR/VR: Customer A's new headphone product will be officially launched in early '24. The product is equipped with 12 cameras, and the company is expected to gain a significant share of supply. We believe that the launch of the first new headphone display product and subsequent iterations are expected to bring some increase in the company's performance.
Improve the automotive business layout and build a second growth curve for lidar: benefiting from the continuous increase in the penetration rate of ADAS for new energy vehicles, lidar market demand is showing a rapid growth trend. According to the MarketsandMarkets report, the ADAS market size will increase from US$309 billion in 2022 to US$65.1 billion in 2030, with a CAGR of 9.7%; the lidar market size will increase from US$1.4 billion in 2023 to US$3.7 billion in 2028, with a CAGR of 19.4%. In 2022, the company and Suteng Juchuang, a leading lidar manufacturer, formed a joint venture, Liteng Innovation. As of March 31, 2023, Suteng Juchuang has received mass production orders from 21 automakers and 52 Tier-1 models, and has delivered more than 100,000 LiDAR units. In October 2023, Sagiteng Juchuang's automotive lidar sales volume exceeded 28,000 units in a single month. We believe that the company's active deployment of the automotive business is expected to benefit from the volume of orders for Suteng Juchuang automotive lidar modules, and that the company's automotive business will have plenty of momentum for growth in the future.
First coverage, giving a “ownership increase” rating: The company is a supplier of precision optical modules for electronic mobile devices. It is engaged in the design, development, manufacture and sale of various modules and system integration products, which are used in smartphones, multimedia tablets, intelligent driving and other mobile devices of internationally renowned brand customers. We are optimistic that the company is expected to expand the A client camera module category in the future, and the product number and share are expected to grow further, providing a large flexible increase in the company's basic market business. At the same time, the company is actively deploying the automotive lidar business, which is expected to benefit from the increase in ADAS penetration to drive the growth in lidar demand. The company's net profit for 2023-2025 is estimated to be US$68 million, US$127 million, and US$203 million respectively, EPS is US$0.08, US$0.15, and US$0.24, and PE is 32X, 17X, and 11X respectively.
Risk warning: Market demand falls short of expectations, risk of technological innovation, risk of excessive concentration of single customers, risk of exchange rate fluctuations.