Incident: On April 21, the company released its 2023 annual report, achieving annual revenue of 890 million yuan, YOY +3.0%; net profit to mother of 310 million yuan, YOY +10.1%. At the same time, the 2024 quarterly report was released. 1Q24 achieved revenue of 360 million yuan, YOY +47.3%; net profit to mother of 99 million yuan, YOY +10.1%. The performance was in line with market expectations. The company insists on focusing on millimeter-wave microsystems to promote low-cost, large-scale application of products.
Net profit increased 37% in 4Q23; profitability remained high. 1) Looking at a single quarter: In 4Q23, the company achieved revenue of 160 million yuan, YOY -19.5%; net profit to mother of 41 million yuan, YOY +37.2%; deducted non-net profit of 30 million yuan, YOY +44.0%. 2) Profitability: The company's gross margin increased 7.4ppt to 52.2% year on year in 2023; net profit margin increased 2.2 ppt to 34.5% year on year. The company continues to focus on accurate guidance business, and gross margin has increased; gross margin and net margin have remained at a high level.
The communication data chain is growing rapidly; various core chips have been mass-produced. In 2023, by product: 1) Accurate guidance: achieved revenue of 850 million yuan, YOY -0.4%, accounting for 96% of total revenue; gross margin increased 7.2ppt to 51.9% year over year; 2) Communications data chain: achieved revenue of 0.2 billion yuan, YOY +788.5%; gross margin decreased 23.7ppt to 62.7% year over year. Incentives: The company implemented equity incentives, further strengthened talent team building, and consolidated the long-term incentive mechanism. Using October 20 as the grant date, 8 million restricted shares were awarded to 162 incentive recipients, accounting for 4.59% of the total share capital at the time, at a grant price of 35.63 yuan/share. The payment fee for confirmed shares was 68.56 million yuan in 2023. Research and development: The company strengthens independent research and development of cutting-edge technology and product application technology, promotes the development of core products in the direction of high integration, miniaturization and low cost, and realizes core technology platformization and chip product serialization. Currently, many core chips have been mass-produced.
Contract liabilities increased 145% in 2023; net operating cash flow increased. The company's expense ratio increased 7.2ppt to 16.7% year on year in 2023:1) The sales expense ratio increased by 1.3ppt to 1.6% year on year, mainly due to the year-on-year increase in warranty and share payment fees; 2) the management fee ratio increased by 3.7 ppt to 9.2% year over year, mainly due to the year-on-year increase in share payment expenses; 3) the R&D cost rate increased by 1.9 ppt to 7.4% year on year; and R&D expenses increased 37.4% year on year to 66 million yuan. As of the end of 1Q24, the company: 1) accounts receivable and notes amounted to $150 million, a decrease of 17.9% from the beginning of the year; 2) inventory of $1.65 billion, a decrease of 10.4% from the beginning of the year; 3) contract liabilities amounted to $82 billion, a decrease of 12.3% from the beginning of the year. By the end of 2023, the company's contract debt was $930,000, an increase of 145.3% over the beginning of 2023. Net cash flow from operating activities in 2023 was RMB 800 million, YOY +3475.9%, mainly due to shorter commercial acceptance bill billing periods, increased turnover of accounts receivable, and increased advance payments for orders obtained.
Investment advice: The company specializes in customized millimeter-wave microsystems, focusing on the precision guidance business segment. The core products have been launched quickly since they were finalized in 2019. Implementing equity incentives twice shows firm confidence in long-term development. We estimate that the company's net profit from 2024 to 2026 will be 360 million yuan, 423 million yuan, and 495 million yuan, respectively.
The current stock price for 2024-2026 PE is 22x/19x/16x, respectively. We maintain a “recommended” rating considering the company's technical advantages and future development space for the industry.
Risk warning: Market demand falls short of expectations, new product development falls short of expectations, etc.