Incidents:
The company released its 2023 annual report. It achieved full-year revenue of 60.792 billion yuan, a year-on-year decrease of 11.27%; realized net profit of 1.948 billion yuan, a year-on-year decrease of 36.34%; and realized net profit without return to mother of 1,779 billion yuan, a year-on-year decrease of 40.90%. Among them, in the 2023Q4 single quarter, the company achieved revenue of 17.735 billion yuan, a year-on-year decrease of 6.59%, and realized net profit of 555 million yuan, a year-on-year decrease of 37.53%. The year-on-year decline in revenue and profit was narrower than in the third quarter.
Demand for consumer electronics weakened in 2023, and automotive and medical electronics grew:
The decline in the company's revenue and profit in 2023 is mainly due to a decline in global demand for electronic products, and the supply chain is in the inventory removal phase. By business, the company's revenue from medical electronics products increased 85.98% year on year, revenue from automotive electronics products increased 10.18% year on year, revenue from communication products decreased by 14.93% year on year, revenue from consumer electronics products decreased by 11.39% year on year, revenue from industrial products decreased by 5.68% year on year, and revenue from cloud and storage products decreased by 23.07% year on year. Automotive electronics products and medical electronics products achieved continuous year-on-year growth, mainly due to the company's expansion of new customers and increased customer demand.
Total revenue growth was positive in January-February 2024, and 2024H2 is expected to accelerate growth:
According to the company's revenue report, in January 2024, the company achieved revenue of 5.191 billion yuan, a year-on-year increase of 11.80%, and achieved revenue of 3.773 billion yuan in February, a year-on-year decrease of 1.13%. Consolidated revenue for January-January was **** billion yuan, up 5.97% year-on-year. Driven by rapid growth in automotive electronics, AI-related hardware, and industrial businesses, the company is expected to achieve double-digit year-on-year growth in the second half of 2024.
The global layout is continuously improved, and endogenous and epitaxial integrates global resources to serve global customers:
The company's global layout is not only the globalization of commercial cooperation and production bases, but also focuses on the global market and integrates global resources. The company will build a new plant in Poland in 2023 and a second plant in Mexico. It is expected to be put into operation in mid-2024.
In October 2023, the company's subsidiary Huanqiang Electronics completed the acquisition of the automotive wireless business of Tyco Electronics Co., Ltd. Through the acquisition of the target business, it is beneficial for the company to deepen the product layout of connected vehicles and achieve a business layout extending from modules to system solutions. Furthermore, by using the target business's overseas sales channels and customer relationships, it is possible to enhance the company's market influence and global competitiveness in Europe, North America and other regions.
With the rapid development of AI computing power deployment and end-side applications, the company's overall layout is expected to benefit:
Since 2023, large generative artificial intelligence models have been iterated at an accelerated pace. The demand for AI large model training and inference is getting higher and higher, and the supply of GPU chips and AI servers is in short supply, which is also driving the growth in demand for edge servers. At the application level, through AI empowerment or “AI+”, consumer electronics products are expected to achieve new breakthroughs in interaction methods, improved usage efficiency, and enhanced original functions.
In the future, people will use AI-enabled core terminal devices, such as mobile phones, computers, etc., to seamlessly connect and interact with smart wearables and smart IoT devices in home and office settings using next-generation communication technologies with high bandwidth, low latency, and easy access, such as WiFi 7, UWB, mmWave, etc.
The company is an industry-leading smart wearable SiP module manufacturing service provider, and is expected to fully benefit from the AI-enabled trend of smart wearable products. At the same time, the company's cloud and storage products are also expected to benefit from the deployment and construction of AI computing power.
Investment advice:
We expect the company's revenue growth rates from 2024 to 2026 to be 12.07%, 10.35%, and 10.27%, respectively, and net profit growth rates of 26.60%, 19.36%, and 8.22%, respectively. The company is a smart wearable SiP module manufacturing service provider and is expected to benefit from the recovery of consumer electronics. At the same time, the company's consumer electronics, communications, and cloud and storage businesses are all expected to benefit from the development of the AI industry and gain new growth momentum. We maintain the company's buy-A investment rating, with a 6-month target price of 16.80 yuan, which is equivalent to a dynamic price-earnings ratio of 15.00x in 2024.
Risk warning: Consumer electronics recovery falls short of expectations, risk of relative concentration of customers, risk of exchange rate fluctuations, etc.