Fourth quarter gross margin exceeded expectations; costs and prices are expected to drop sharply in 2024
Star Semiconductor's revenue in 2023 was 3.66 billion yuan (yoy +35.4%), and net profit to mother was 9.1 billion yuan (yoy +11.4%). Foundry price cuts and product optimization led to a year-on-month increase in gross margin of 3.9 pp to 40.5% in the fourth quarter, exceeding our expectations (35.3%). Considering IGBT price reduction pressure, we lowered our 2024/2025 revenue forecast by 5/8%. Considering the price transmission brought about by the foundry price reduction, we raised our 2024/2025 gross margin forecast by 1.6/2.0pp to 34.6%/33.5%. In summary, we expect net profit to mother in 2024/2025/2026 to be 979/11.39/1,309 million yuan. Considering the company's leading edge in fields such as SiC modules and automotive-grade IGBTs, we gave the company 32x 2024E PE, a 28.1x premium compared to the company's median, lowered the target price to 183.36 yuan (previous value: 186.88 yuan) to maintain the “buy” rating.
2023 review: Fourth quarter gross margin exceeded expectations; inventory turnover days narrowed month-on-month; Star Semiconductor's 2023 revenue was 3.66 billion yuan (yoy +35.4%), with industrial/new energy/white power business revenue increasing 15.6%/48.1%/69.5% year over year. Net profit attributable to mother was 9.1 billion yuan (yoy +11.4%).
4Q23's revenue in a single quarter was 1.04 billion yuan (yoy +25.6%; qoq +12.2%), with a gross profit margin of 40.5%, up 3.9 pp from month to month, mainly due to falling OEM costs and adjustments in the company's product structure, which exceeded our expectations (35.3%). Net profit attributable to mother was 252 million yuan (yoy +10.92%; qoq +10.53%). The number of inventory turnover days in 4Q23 fell 5 days month-on-month to 154. The inventory structure was mainly based on raw materials, reflecting an improvement in downstream demand in the fourth quarter and the start of inventory consumption.
2024 outlook: It is expected that the cost price may enter a double reduction channel. We are optimistic that SiC modules will be launched in batches. We believe: 1) Price level: On the one hand, the price war between car companies is fierce from the beginning to date; on the other hand, foundry/IDM production capacity is still in the expansion channel, so the company's IGBT product prices are still facing downward pressure. We lowered our 2024/2025 revenue forecast by 5/8% to reflect increased competition in the industry; 2) At the cost level, the foundry price reduction company that started 2H23 will help shift the terminal cost pressure upward, and we raised it. The 2024/2025 gross margin is expected to be 1.6/2.0pp to 34.6%/33.5% to reflect the resilience of the company's gross margin. We are optimistic about the company: 1) Automotive-grade IGBT modules have received many international Tier 1 designations, and overseas markets are expected to break through further; 2) Automotive-grade SiCMOS equipped with the company's autonomous chips is expected to begin mass supply to main motor controller customers in '24.
Maintain the “buy” rating and lower the target price to $183.36
Considering the downward pressure on power IGBTs, we lowered our 2024/2025 revenue forecast by 5/8%. Considering the price transmission brought about by the foundry price reduction, we raised our 2024/2025 gross margin forecast by 1.6/2.0pp to 34.6%/33.5%. In summary, we expect net profit to mother for 2024/2025/2026 to be 979/11.39/1,309 million yuan. Considering the company's leading edge in SiC modules, automotive-grade IGBTs, etc., we gave the company 32x 2024E PE, a 28.1x premium compared to the company's median, and lowered the target price to 183.36 yuan (previous value: 186.88 yuan) to maintain the “buy” rating.
Risk warning: SiC production lines fall short of expectations, NEV sales fall short of expectations, and IGBT competition intensifies.