Description of the event

On April 22, Wingtech released its 2023 annual report and 2024 quarterly report. The company achieved operating income of 61,213 billion yuan in 2023, a year-on-year increase of 5.40%, net profit to mother of 1,181 billion yuan, a year-on-year decrease of 19.00%, and net profit after deducting non-return to mother of 1,127 billion yuan, a year-on-year decrease of 28.58%. The company achieved annual revenue of 16.247 billion yuan in the first quarter, a year-on-year increase of 12.62%, net profit to mother of 143 million yuan, a year-on-year decrease of 68.82%, after deducting non-return net profit of -87 million yuan, a year-on-year decrease of 121.82%.

Incident comments

Semiconductor business: The company's semiconductor business achieved 15.226 billion yuan in 2023, a year-on-year decrease of 4.85%, gross margin of 38.59%, and realized net profit of 2,426 billion yuan, a year-on-year decrease of 35.29%. Affected by macroeconomic and other factors, the growth rate of the global semiconductor market slowed at the end of 2022 after a strong two-year cycle, and remained weak from 2023 to early 2024. Looking at downstream applications, the automotive, mobile and wearable devices, industrial and electricity, computer equipment, and consumer sectors accounted for 62.8%, 6.9%, 21.7%, 4.8%, and 3.8% of revenue, respectively. From a regional perspective, Europe, the Middle East and Africa region is 26.65%, Greater China is 42.07%, and the American region is 10.97%. From a product structure perspective, transistors, MOSFET power tubes, and analog and logic ICs account for 40.84%, 40.21%, and 15.37%, respectively. The semiconductor business achieved revenue of 3.42 billion yuan in the first quarter, gross profit margin of 31.0%, and net profit of 520 million yuan.

ODM business: The company's ODM business reached 44.315 billion yuan in 2023, a year-on-year increase of 11.99%, gross margin of 8.37%, and net loss of 447 million yuan. Facing a weak consumer electronics market environment in 2023, the ODM business continued to explore overseas markets, increase revenue, and strengthen cost control, reduce costs and increase efficiency. After deducting the impact of goodwill impairment of 494 million yuan, the ODM business achieved profit in 2023, improving year-on-year. In 2023, the ODM business optimized R&D investment and improved R&D efficiency. R&D investment was about 2,650 billion yuan, a year-on-year decrease of 18.56%. The ODM business achieved revenue of 12.42 billion yuan in the first quarter, a gross profit margin of 3.0%, and a net loss of 350 million yuan.

Optical module: The company's optical module business had a net loss of 719 million yuan in 2023. In the fourth quarter of 2023, due to the company's cessation of production of optical module products for specific customers, the estimated asset impairment preparation for 2023 was 295 million yuan, asset disposal losses of 226 million yuan, and the total impact of related personnel placement expenses and deferred income tax transfers was 193 million yuan. In total, the above matters reduced the company's net profit for 2023 by a total of 714 million yuan.

The company's endogenous+epitaxial strategy continues to improve the business layout, and the semiconductor+ODM+ optical module currently formed has a good synergy effect. The automotive electronics sector acquired Anse and quickly became the global leader in automotive power devices. In the future, along with the gradual penetration of automobile electrification and intelligence, the power device market space will be broad. In terms of semiconductor business, from a long-term perspective, trends such as electrification, digitalization, automation, and green energy will still drive the growth of the semiconductor market, and AI development will accelerate the growth of the semiconductor market; in the ODM business, facing new opportunities in product technology upgrades and switching cycles brought by AI, the company has formulated a clear AI product technology roadmap to actively cooperate with customers to popularize artificial intelligence in mobile phones, tablets, laptops, IoT, automotive electronics, etc. We expect the company's 2024-2026 EPS to be 0.85, 1.80, and 2.14 yuan respectively, maintaining the company's “buy” rating.

Risk warning

1. The boom in power semiconductors fell short of expectations;

2. The recovery of consumer electronics fell short of expectations.