Goertek released its 2022 annual financial report and 2023 first quarter financial report (as of March 2023) after the market hours of Longbridge A shares on the evening of April 17, 2023, Beijing time, the main points are as follows:
First, the overall performance: revenue growth is stable, gross profit collapse. (1)$ Goertek shares. SZ's total revenue for the quarter was 24.1 billion yuan, up 20% year-on-year, exceeding market expectations (22.1 billion), and the growth was mainly driven by the growth of smart hardware businesses such as VR virtual reality and smart game consoles. (2) The company's gross margin for the quarter was 7%, down 6.7pct year-on-year, significantly lower than market expectations (12.4%). The manufacturing link where the company is located is under the pressure of rising costs, and the gross profit margin of the company's three major businesses has decreased to a certain extent. (3) The company's net profit attributable to the parent in the quarter was 110 million yuan, down 88% year-on-year, far lower than market expectations (880 million yuan);
Second, the progress of each business: intelligent hardware becomes the core, and the acoustic machine is a big burden. For the first time, smart hardware revenue and gross profit have exceeded 60%, becoming the company's largest source of performance. In the case of production problems, the decline of intelligent acoustic machines is more obvious, especially the gross profit margin of the business has fallen sharply; Driven by intelligent hardware, the precision component business has also achieved a "turnaround and a rise". Overall, with the growth of the smart hardware business, the impact of the sluggish consumer electronics business on the company weakened, and the company's business was transformed.
Third, the cost and operation: inventory dematerialization shows results, profit release is still difficult. Through the large amount of asset impairment, the company's inventory has been significantly optimized, and the inventory level has fallen from a high level to a reasonable water level. The company's core four expense ratios for the quarter were only 7%, which was at a low level in the same period, mainly due to the company's scale effect and the treatment of fee control. Affected by rising costs, the company's profits are difficult to release, and there is a large decline.
Overall: Goertek's earnings report is not ideal.
Looking at this earnings report first, the company has performed well only in revenue. Despite weak industry demand and production issues, revenue still achieved 20% growth, which exceeded market expectations. However, compared with revenue, the gross margin and profit of the company's financial report are too poor. This is mainly due to the sharp decline in the gross profit margin of the company's intelligent acoustic machine business under the superposition of rising costs and production problems. The "crash-like decline" in gross margin and profit was enough to mask the bright spot in revenue.
Since the main problem of this poor performance lies in the gross margin, can the gross margin usher in a recovery? Dolphin Jun believes that there is an opportunity for gross profit margin to recover, but there is no opportunity for a significant improvement at present. After a large amount of asset impairment, the company's inventory has fallen back to a reasonable level. The reduction of inventory pressure is expected to re-improve the company's output efficiency, which will help the recovery of gross margin. The sharp repair of gross profit margin still requires a significant recovery in downstream demand.
Combined with the company's current situation, although the stock price is still at a low level, this earnings report does not bring greater confidence to the market. The sharp decline in gross profit margin has seriously affected the release of profit side. There are industry reasons and their own reasons, which affect the market's medium- and long-term expectations for the company's performance. A downward shift in performance expectations and valuation centers will also be inevitable.
The following is the specific analysis of Goertek's financial report by Longbridge Dolphin Jun:
First, the overall performance: revenue growth is stable, gross profit collapse
1.1 Revenue
Goertek's total revenue in the first quarter of 2023 was 24.1 billion yuan, a year-on-year increase of 19.9%, exceeding market expectations (22.1 billion). Although the company was previously affected by the production of intelligent acoustic products, the revenue side still achieved nearly 20% growth, which was mainly driven by the growth of the intelligent hardware business.
2.2 Māori end
Goertek achieved gross profit of 1.683 billion yuan in the first quarter of 2023, down 39% year-on-year, and the decline in gross profit was mainly caused by a sharp decline in gross margin.
The company's gross margin for the quarter was 7%, down 6.7pct year-over-year, significantly below market expectations (12.4%). The main reasons for the sharp decline in the company's gross profit margin in this quarter are: 1) the increase in direct material costs in the cost items, which directly squeezed the company's gross profit margin; 2) The gross profit margin of the intelligent acoustic machine has dropped significantly, which has reduced the overall gross profit margin.
Second, the progress of each business: intelligent hardware becomes the core, and the acoustic machine is a big burden
In the smart hardware business, it is mainly composed of ARVR devices (Meta's Oculus, Pico, etc.), PS game consoles and other products. With the continuous high growth of the business, the intelligent hardware business has accounted for more than 60% of the company's revenue and gross profit. Goertek's "amount of apples" and "headphones" has decreased, and the influence of new applications of smart hardware has increased.
2.1 Intelligent hardware business
Goertek's intelligent hardware business achieved revenue of 38.27 billion yuan in the second half of 2022, a year-on-year increase of 77.2%. With shipments of Oculus, Pico, and PS products growing, the company's smart hardware business has grown into the largest revenue stream.
Goertek's intelligent hardware business achieved a gross profit margin of 10.1% in the second half of 2022, down 3.7pct year-on-year. Under the influence of inflation, the company is under greater pressure from rising costs in the manufacturing process, which squeezes the company's gross margin.
Looking at the gross profit margin of smart hardware and the overall gross profit margin, the changes between the two are becoming more and more similar. This is mainly due to the increase in the proportion of intelligent hardware business, which increases the influence of intelligent hardware in the overall gross profit margin. In the future, the company's overall gross profit margin changes, mainly focusing on the change of intelligent hardware gross profit margin.
2.2 Intelligent acoustic machine
Goertek's intelligent acoustic machine business achieved revenue of 13.54 billion yuan in the second half of 2022, down 23.9% year-on-year. Goertek's intelligent acoustic machine business mainly undertakes Apple's Airpods series products.
The company's smart acoustics revenue declined in the quarter, mainly due to weak shipments in the wireless headset market and production problems with one of the company's smart acoustic machines. With the decline of the smart acoustic machine business, the proportion of the company continued to decline to 22% in the quarter.
The gross profit margin of Goertek's intelligent acoustic machine business fell to 2.5% in the second half of 2022, down 7.7pct year-on-year. While manufacturing costs increased, production problems in a certain product seriously affected the company's shipments in the quarter.
Dolphin Jun believes that intelligent acoustic products such as Airpods have been difficult to achieve high growth in the past, and their importance in the company's business will continue to weaken.
2.3 Precision components business
Goertek's precision component business achieved revenue of 8.32 billion yuan in the second half of 2022, a year-on-year increase of 6.9%. Goertek's precision component business mainly includes MEMS, mic and other electronic devices. This business was originally mainly used in the field of mobile phones, but with the introduction of more components in smart hardware, it has brought certain support to the component business.
Goertek's precision component business had a gross margin of 20.5% in the second half of 2022, down 2.4pct year-on-year. The decline in the gross profit margin of the company's precision components was mainly caused by the increase in manufacturing costs.
Dolphin Jun believes that as the company shifts its business focus to the field of smart hardware, the downstream of the smart component business will gradually shift from mobile phones to smart hardware. The double-digit growth of smart hardware is expected to drive the growth of the component business.
Third, the cost and operation: inventory dematerialization shows results, profit release is still difficult
3.1 Operating Indicators
(1) Accounts receivable: Goertek's accounts receivable in the first quarter of 2023 was 11.412 billion yuan, a year-on-year increase of 46.7%. From the accounts receivable/operating income indicator, Goertek was 0.47 in the quarter, maintaining a relatively reasonable level.
(2) Inventory: Goertek's inventory in the first quarter of 2023 was 12.782 billion yuan, down 0.1% year-on-year. From the inventory/operating income indicator, Goertek continued to decline to 0.53 in the quarter. Previously, Goertek's overall inventory level was high, and there was a risk of inventory overstock. In this financial report, after Goertek underwent a certain amount of inventory impairment, the inventory level dropped significantly and has fallen back to a reasonable level.
3.2 Fee Rates
In the first quarter of 2023, the total of four expenses of Goertek was 1.697 billion yuan, a year-on-year decrease of 4.6%. Four expense ratios were 7%, with four expense ratios declining primarily due to lower selling expenses and higher foreign exchange gains.
1) Sales expenses: $145 million in the quarter, up 2.8% year-over-year, with a selling expense ratio of 0.6%. The decrease in the company's selling expense ratio was mainly due to the company's good customer relationships and scale effects, and the sales expense ratio was stable below 1%;
2) General and administrative expenses: 553 million yuan in the quarter, an increase of 16.7% year-on-year, and the management expense ratio was 2.3%. As the company's revenue grew, the management expense ratio fell below 3% under economies of scale;
3) R&D expenses: 961 million yuan in the quarter, down 13.7% year-on-year, and R&D expense ratio of 4%. The company's R&D expenses account for the largest proportion of the four expenses, mainly invested in the company's R&D investment in the field of intelligent hardware and other precision components;
4) Finance expenses: 38 million yuan in the quarter, down 22.4% year-on-year, and the finance expense ratio was 0.2%. The change in the Company's finance expense was mainly due to exchange rate effects.
3.3 Net Profit
Goertek's net profit attributable to the parent in the first quarter of 2023 was 106 million yuan, down 88% year-on-year, far below market expectations of 880 million yuan. Goertek's profit in the quarter was less than expected, mainly due to the company's gross profit margin falling more than expected, which was also mainly affected by the increase in manufacturing costs and the sharp decline in the gross profit of the acoustic machine.
In the first quarter of 2023, the company's net profit margin fell back to 0.4%, and the significant decline was mainly due to the underweight gross margin. The destocking has helped the company's gross margin recover, but the sharp recovery still needs to pay attention to the improvement in the downstream sector.