Incidents:
The company announced its 2023 performance forecast. In 2023, it achieved operating income of 1.08 billion yuan to 1,095 million yuan, a year-on-year decrease of 39.44% to 38.60%; realized net profit from 36 million yuan to 30 million yuan, from profit to loss; realized net profit after deducting non-return to mother -115 million yuan to -105 million yuan, which changed from profit to loss year on year; excluding the impact of share payment fees generated by the company's restricted stock incentive plan. It is expected to achieve net profit of 500,000 yuan to 6 million yuan in 2023.
On the evening of January 22, the company announced that it intends to purchase 85.26% of the shares of Shenzhen Chuangxin Microelectronics Co., Ltd. by issuing convertible bonds and paying cash, and raise about 383 million yuan in supporting capital by issuing shares to no more than 35 specific targets, not exceeding 100% of the transaction price of assets purchased by issuing convertible corporate bonds in this transaction, and the number of shares issued shall not exceed 30% of the company's total share capital before the transaction to pay the cash consideration and intermediary agency fees for this transaction.
Comment:
Revenue margins improved in 23Q4, but profitability is still under pressure: the company expects to achieve revenue of 267 million to 282 million yuan in a single quarter, an increase of 32.84%-40.3% over the previous quarter; achieve net profit of 66 million yuan to -56 million yuan after deduction. Affected by factors such as the economic situation, industry boom cycle, customer inventory removal, etc., there was no significant recovery in demand in the telecommunications and industrial terminal markets, and the company's overall operating income declined compared to the same period in '22; moreover, market competition was intense in '23, sales prices of some of the company's products were under pressure, and gross margin of some products declined. The company's comprehensive gross margin is expected to be around 52% in '23, down about 6.6pct from '22. Furthermore, in order to firmly promote the platform-based business layout, the company continued to strengthen R&D and technical investment in automotive-grade products, data converters, interfaces, power supplies, MCUs, etc., and promoted domestic and foreign market development. The number of R&D and sales personnel increased, and employee remuneration, R&D materials and testing fees, depreciation and amortization increased over the same period in '22.
It is proposed to acquire Chuangxin Micro by issuing convertible bonds and paying cash. The performance promise shows confidence in development: the company plans to purchase 85.26% of Shenzhen Chuangxin Microelectronics Co., Ltd. shares by issuing convertible bonds and paying cash. Chuangxin Micro focuses on the development of battery management and power management chips. Its main products include lithium battery protection chips, AC/DC, power devices, etc., and has hundreds of product models. Chuangxinwei's single-cell lithium battery protection chips have a strong competitive advantage in the TWS headphone field, and multi-cell lithium battery protection chips have a strong competitive advantage in the field of power tools. Chuangxin Micro's products for TWS headsets are mainly single-cell lithium battery protection chips. Terminal brands include Xiaomi, OPPO, Vivo, Honor, etc. In 2022, Chuangxin Micro shipped approximately 81 million lithium battery protection chips for TWS earphones, including lithium battery protection chips for battery compartments and headsets. Chuangxin Micro's products for power tools are mainly multi-cell lithium battery protection chips. Terminal brands include TTI, Baoshide, Deli, Iron Anchor, etc.
The end customers of Chuangxin's micro lithium battery protection chips are mainly battery protection board manufacturers. Some multi-cell lithium battery protection chips can be used not only in power tools, but also in products such as vacuum cleaners, fascia guns, and power banks. In 2022, Chuangxin Micro shipped approximately 108 million lithium battery protection chips for power tools. Chuangxin Micro achieved operating revenue of 200 million yuan and 180 million yuan respectively in 2021 and 2022. In Q1-Q3 of 2023, operating revenue and net profit surpassed 2022, and the operating situation picked up. Performance planners Yang Xiaohua, Bai Qinggang, Chuangxin Information, Chuangxin Technology, and Chuangxin Technology promised that Chuangxin Micro's total net profit for 2024, 2025, and 2026 will not be less than 220 million yuan. In the future, as the domestic chip replacement process continues to advance, domestic wafer foundry production capacity is released, foundry prices are stabilized, and Chuangxin Micro's brand and scale effects are initially prominent, the performance promise is achievable. In the future, as Chuangxin Micro's performance improves, the company's profitability will be enhanced.
The acquisition of Chuangxinwei will help improve the company's layout in the consumer electronics field and move towards a “platform-based chip company”: Sirapp's current product signal chain chips still account for the majority. Signal chain analog chips account for 79.78% of revenue in the first three quarters of 2023, power analog chips account for 19.75% of revenue, and power analog chip products are mainly linear power products. The company's downstream application areas are mainly information communication, industrial control, monitoring safety, healthcare, instrumentation, new energy and automobiles; Currently, the downstream application fields of Chuangxin Micro are mainly in the consumer sector, It is also gradually expanding into industrial and other fields. The merger and acquisition of Chuangxin Micro can effectively broaden the company's downstream application areas and accelerate the company's layout in the field of battery management and power management chips. It is an important step for the company to implement the “platform chip company” strategy. It helps the company accelerate its progress towards a comprehensive analog chip manufacturer, provide downstream customers with more comprehensive chip solutions, and weaken the company's impact on the cyclical impact of the industry.
Profit forecast, valuation and rating: Considering the company's 23-year performance forecast and the fact that the sentiment in the communications and industrial sectors has not fully recovered, the 23-25 net profit forecast was lowered from 432 million/654 million/826 million yuan to -32 million/247 million/478 million yuan, with adjustments of -107%/-62%/-42%, and the corresponding PE for 23-25 was N/A/52X/27X, respectively. Although the company's 23-year performance was affected by the downstream boom, new products such as MCU and AFE are progressing smoothly, the automotive-grade business is gradually expanding, and self-built test centers and in-house processes are becoming mature. We are optimistic about the company's long-term development potential and maintain a “buy” rating.
Risk warning: downstream demand falls short of expectations, industry competition intensifies, etc.