1H23's performance met our expectations
Changxin Technology announced 1H23 results: operating income of 3.374 billion yuan, up 5.03% year on year; net profit of gross profit of 220 million yuan, down 39.77% year on year; gross profit margin of 12.20%, decrease of 8.98 ppt year on year.
In the 2Q23 quarter, Changxin achieved revenue of 1,903 billion yuan, an increase of 27.21% over the previous year, an increase of 29.28% over the previous year, and return net profit of 115 million yuan, a year-on-year decrease of 37%, and a year-on-year increase of 10.8%. We believe that the decline in the profit level of Changxin 1H23 is mainly due to the rise in operating costs due to increased competition in the industry and the rapid growth of low-margin businesses such as e-paper modules, which has led to the product structure being skewed towards low-margin businesses.
Development trends
Launch the on-board display first, and extend the HUD rich product matrix. The company has an in-depth layout of smart cockpit touch display products, and has a complete industrial chain. The business covers key components such as vehicle sensors, vehicle covers, and vehicle display modules, as well as integrated vehicle touch display module packaging business such as instrument panel modules, central control screen modules, and driving displays. At the same time, the company is actively promoting R&D and investment in the field of HUD components. According to the semi-annual report, the company has now mastered automotive HUD curved mirror technology, has tested production in small batches, and is planning a production workshop for mass production of HUD products. We are optimistic that the company will improve the smart cockpit product matrix and fully benefit from the development of new energy vehicles.
UTG related technology is mature, deepening cooperation with leading downstream customers. Relying on the foundation of thinning technology, the company already has technical capabilities and equipment processing capabilities for all stages of mass production, from thinning to glass monomer molding. The company's existing UTG products cover 2-20 inches, cover 30-100um in thickness, and have strong bending and impact properties. According to the semi-annual report, the company has obtained project targets from major domestic brand customers, and has in-depth cooperation with ZTE, OPPO and other mainstream mobile phone customers. As the share of folding screen phones in the high-end mobile phone market increases, we believe UTG's business is expected to become the company's new profit growth point.
Entered the e-paper sector to meet policy and market requirements. The 2022 China Industry and Information Technology Work Conference revealed the year's key tasks. E-paper is in a forward-looking display industry that needs to be strengthened. At the same time, e-paper is also one of the excellent display solutions under the global “double carbon” target. We estimate that the application and promotion of electronic paper tags in China is still in its infancy, with a penetration rate of less than 10%. The company set up a fifth division, which specializes in electronic paper and X-Ray driver substrates. According to the company's semi-annual report, related products have now been shipped in small quantities and verified by customers, and a number of patents are being applied for.
Profit forecasting and valuation
Considering that increased competition in the industry is dragging down profits, we lowered Changxin's 2023/24e EPS by 20%/15% to 0.24/0.29 yuan. The current stock price corresponds to 2023/24e 24.7/20.4x P/E. We maintain our outperforming industry rating. Considering that the current stock price basically reflects Changxin's performance pressure, we lowered our target by 12% to 6.5 yuan, corresponding to 2023/24e 27.6/22.7x P/E. Currently, there is still room for 12% increase.
risks
Demand for new energy vehicles and consumer electronics fell short of expectations; competition in the industry increased, and profitability was under pressure.