Performance review
The net profit of 2021 is lower than we and the market had expected.
The company announced its 2021 results: revenue of 89.057 billion yuan, an increase of 21.8% over the same period last year, and net profit of 2.31 billion yuan, down 57.5% from the same period last year. Corresponding to 4Q21 revenue of 23.122 billion yuan, an increase of 7.0% over the same period last year, the net profit of returning to the mother was 153 million yuan, down 86.2% from the same period last year. The company's 2021 net profit was 23.9% below our and market consensus expectations of 20.7%, respectively. The company said that: 1) the mask business formed a high base in 2020; 2) affected by the epidemic and lack of core, customer demand fell short of expectations, resulting in low capacity utilization. The company announced that it intends to pay a cash dividend of 0.103 yuan per share in 2021.
Trend of development
Sluggish demand for high-end Android models led to a decline in parts revenue, and revenue growth in the assembly and automotive businesses was impressive. In 2021, spare parts business revenue fell 10.9% year-on-year to 15.655 billion yuan, mainly due to a decline in sales of high-end flagship models, while assembly business revenue increased by 79.7% to 55.977 billion yuan year-on-year, mainly due to the continued increase in product share of major customers in North America. however, due to poor demand from Android customers, we expect Android capacity utilization to be low or a drag on assembly gross profit margin. In addition, the revenue of new intelligent products in 2021 increased by 31.3% to 12.45 billion yuan compared with the same period last year, of which electronic atomization products completed the core patent layout and production capacity construction, and customer cooperation was further expanded; while benefiting from the increase in shipments of products such as multimedia central control systems and 4G communication modules, the business revenue of automotive intelligent systems increased by 107.5% to 3.77 billion yuan compared with the same period last year.
Android assembly is a drag on gross profit margin, and R & D investment continues to increase. Due to low demand and low utilization of Android assembly capacity, the company's gross profit margin fell 6.4ppt to 6.8% year-on-year, a drag on profitability.
In 2021, the company also continued to increase R & D investment, with R & D expenses rising by 13.6% to 3.308 billion yuan compared with the same period last year, while management expenses increased by 54.7% to 1.041 billion yuan over the same period last year. We expect to be mainly due to the increase in management expenditure brought about by the expansion of income.
It is optimistic that the product share and types of major customers in North America will increase, and new businesses such as electronic atomization and automotive electronics are expected to grow rapidly. Looking ahead to 2022, we expect that with the increase in the share of the company's core products and the introduction of new products, the assembly business of major customers in North America will see rapid growth, while shipments of metal structures are expected to increase; Android customers may still be under pressure. In addition, the company has continued to invest in the research and development of new businesses such as e-cigarettes and automotive electronics in the past few years, and the company expects electronic atomization business to achieve substantial growth with the mass production of new projects in 2022, and shipments of automotive communication modules at the central control system level are also expected to grow at a high speed. We are optimistic that the company's profits will return to growth in 2022, driven by the improvement of Android gross profit margin, North American customers, electronic atomization, and the rapid growth of automotive electronics.
Profit forecast and valuation
Considering that Android phones are in the doldrums, the net profit for 2022 will be reduced by 40.4% to 2.409 billion yuan, and the net profit forecast for 2023 will be 3.025 billion yuan. The current share price corresponds to a price-to-earnings ratio of 13.2 times 2023 / 10.5 times earnings. Maintain the outperform industry rating, downgrade the target price by 40.5% to HK $22.0, corresponding to 17.7 / 14.1 times 2022 Universe 2023 P / E, with 34.1% upside space.
Risk.
Android capacity utilization is low, North American customer expansion is slow, e-cigarette and automotive electronics expansion is slow.