Incident Overview
Puyuan Precision Electronics released its 2023 annual report on March 21. In 2023, the company achieved operating income of 671 million yuan, an increase of 6.34% over the previous year; achieved net profit of 108 million yuan, an increase of 16.72% over the previous year; and realized net profit of 60 million yuan without return to mother, an increase of 27.60% over the previous year.
High-end technology continues to advance, and gross margin has increased significantly
In 2023, the company achieved revenue of 671 million yuan (yoy +6.34%), and Q4 achieved revenue of 198 million yuan (yoy -8.54%). We believe that the slowdown in the company's 23H2 growth rate is mainly due to the macroeconomic environment. Some domestic customers have delayed procurement of measuring instruments, and dealers' inventory needs to be digested, causing the demand side of the industry to face pressure, compounding the impact of the company's economical product transformation. In the long run, we believe that localization and high-end technology are still the driving forces for the company's growth. According to the annual report, the company's domestic revenue in 2023 was 403 million yuan, up 14.6% year on year, significantly higher than the overall growth rate. At the same time, the company's high-bandwidth and high-resolution oscilloscopes accounted for 54.3% of revenue, up 12.6 pcts from the same period last year. The high-end product structure also brought the company a higher profit level. The company's gross margin in 2023 was 56.7%, an increase of 4.01 pcts over the same period last year. The gross margin of oscilloscopes was 58.3%, up 3.31 pcts year on year.
The 13GHz oscilloscope highlights technological leadership, and the amplification can be expected
In September 2023, the company released the DS80000 series of next-generation flagship oscilloscopes, which can reach 13 GHz bandwidth, 40 GSa/s sampling rate, and 4 Gpts storage depth, once again setting the performance limit of domestic oscilloscopes. Thanks to significant performance improvements, the application range of the DS80000 series has been further expanded to include 1) performance verification of high-speed devices and systems, such as advanced jitter and eye map analysis functions; 2) signal consistency analysis, including high-speed protocols such as PCIe, USB3.0, and HDMI; and 3) support for debugging and analysis of all DDR2 and DDR3 rates. According to the company's previous information on the investor interactive platform, the total market for 13 GHz oscilloscopes is about 3 billion yuan, and the domestic market is about 1 billion yuan, which is impressive. We believe that the performance growth of electronic measuring instrument companies largely depends on the pace of introduction of new products, especially high-end new products. Considering that the DS80000 is a high-end instrument, the verification period is usually more than 1 year, and it is expected that it will start rolling out in 2024, injecting new momentum into the company's growth.
The acquisition of Endurance Electronics had remarkable multi-dimensional synergy effects
According to the annual report, the company completed the acquisition of 32.25% of NISU Electronics' shares in February 2024 and obtained voting rights corresponding to 51.14% of NISU Electronics' shares. According to the acquisition announcement, Endurance Electronics focuses on the development and application of digital array systems. Its products are mainly used in cutting-edge application fields such as remote sensing detection, quantum information, radio astronomy, microwave communication, etc. The downstream customers are mostly leading domestic research institutes and technology-based enterprises. The customer quality is high, and its grasp of the application needs of front-end customers is more cutting-edge and accurate. We believe that, on the one hand, this acquisition will help the company expand its downstream customer base, such as adding high-quality customers such as new research institutes, thereby helping to introduce the company's other high-end products, such as 13 GHz oscilloscopes in the fields of remote sensing detection, quantum information, radio astronomy, microwave communication, etc.; at the same time, it will also help the company to further grasp the application needs of cutting-edge customers and achieve a smoother transformation from technology to products.
Investment advice:
The company is a leading electronic measurement company in China. After more than 20 years of development, the company has formed a leading edge in brand, channel, technology, etc. As one of the “stuck neck” technologies, electronic measuring instruments have considerable room for domestic replacement. We are optimistic that the company will continue to develop over a long period of time in the future in the context of the accelerated release of industry dividends and with a rich pipeline of products under development.
We expect the company's revenue for 2024-2026 to be 8.56/10.72/1,314 million yuan, respectively, and net profit to mother of 1.52/2.07/283 million yuan, respectively. Maintaining the buy-A investment rating, the target price for 6 months is 49.2 yuan, which is equivalent to 60 times PE in 2024.
Risk warning: 1) Risk of new product development falling short of expectations; 2) risk of limited supply of upstream raw materials; 3) risk of market and channel development falling short of expectations; 4) risk of downstream market demand falling short of expectations; 5) risk of acquisition falling short of expectations.