20220427-招银国际-韦尔股份-603501.SH-The_feared_bad_1Q22_is_gone__All_eyes_on_the_recovery_5页_1mb

Willsemi (603501 CH) Company Update Summary

Core Content

Willsemi, a Chinese technology company, reported its 1Q22 results, which showed a decline in both revenue and net profit to shareholders compared to the previous year. The company's revenue dropped by 10.8% YoY to RMB5,583 million, and net profit to shareholders fell by 13.9% YoY to RMB896 million. These results were below market expectations, even though the company had previously maintained a conservative forecast.

The decline was attributed to two main factors: weaker smartphone shipment volumes and reduced semi distribution sales due to logistic disruptions. The gross profit margin also decreased slightly to 35.3% from 36.5% in 4Q21, due to clients' pricing strategies aimed at share gains.

Main Points

• 1Q22 Performance:

  • Revenue: RMB5,583 million (-10.8% YoY)
  • Net Profit to Shareholders: RMB896 million (-13.9% YoY)
  • Missed expectations despite growth in non-mobile CIS.

• Reasons for Decline:

  • Weakness in smartphone shipments.
  • Reduced semi distribution sales due to logistics issues.

• Inventory Concerns:

  • Inventory levels reached 5.7x monthly sales in 1Q22, raising concerns about asset impairment.
  • The high inventory level may hinder short-term performance due to market sentiment and potential lockdowns.

• Short-Term Outlook:

  • The company expects a 50%+ QoQ growth in 2Q22, driven by product structure adjustments and market recovery.
  • However, the short-term performance is expected to remain challenging.

• Long-Term Outlook:

  • The analyst remains positive on the company's long-term growth potential.
  • Non-mobile CIS is expected to grow 70% YoY in 1Q22, with a full year growth forecast of 36.1%.

• Target Price and Recommendation:

  • The target price was reduced to RMB200.00 from RMB270.00, based on a 35x FY22E P/E multiple.
  • The recommendation remains "BUY" with a potential upside of +48% from the current price of RMB134.66.

Key Financial Metrics

Key Risks

• Economic Downturn: A worse-than-expected global economy could reduce consumer spending.
• Inventory Levels: High inventory levels may lead to asset impairment risks.
• Logistic and Production Disruptions: Possible disruptions in logistics and production could further impact performance.

Market Performance

• Market Cap: RMB118,085 million
• Average 3-month turnover: RMB1,651 million
• 52-week High/Low: RMB345 / RMB134.02
• Total Issued Shares: 876.9 million

Shareholding Structure

Share Performance

CMB International Global Markets Ratings

• BUY: Potential return of over 15% over next 12 months.
• OUTPERFORM: Industry expected to outperform the relevant broad market benchmark.
• HOLD: Potential return of +15% to -10% over next 12 months.
• MARKET-PERFORM: Industry expected to perform in-line with the relevant broad market benchmark.
• SELL: Potential loss of over 10% over next 12 months.
• UNDERPERFORM: Industry expected to underperform the relevant broad market benchmark.

Analysts

• Lily Yang, Ph.D
• Alex Ng
• Lana Lin

Disclosures

• The research analyst certifies that the views expressed in the report accurately reflect personal views and not influenced by compensation.
• The analyst has not traded in the stocks covered in the report within 30 days prior to the report's release.
• The report is not an offer to buy or sell any securities and is intended solely for informational purposes.

Additional Information

• Auditor: BDO

• Related Reports:

  • In-line FY21 results: Solid non-mobile CIS growth overshadowed by weak smartphone – 20 Apr 2022
  • China CIS sector - Can non-mobile CIS strength offset handset weakness? – 1 Apr 2022
  • FY21 revenue in line; Growth story stays intact – 10 Mar 2022

• CMBIGM Ratings:

  • The company is rated as "BUY" with a target price of RMB200.00.

• Financial Summary:

  • Earnings Preview shows quarterly results with a revenue decline in 1Q22.
  • Earnings Revision indicates a downward revision in revenue and profit forecasts for FY22E.
  • CMBIGM Estimates vs Consensus show a gap in expectations for FY22E.

• Key Ratios:

  • Revenue by segment: CMOS dominates with 64.9% of FY22E revenue.
  • Gross margin: Expected to remain stable at 34.9% for FY22E.
  • Net profit margin: Expected to be 17.8% for FY22E.
  • ROE: Expected to be 22.5% for FY22E.

Conclusion

Willsemi faces short-term challenges due to weak smartphone shipments and inventory concerns, but long-term growth in non-mobile CIS is expected to drive performance. The company is currently rated as a "BUY" with a reduced target price, reflecting a more conservative outlook due to market sentiment and economic uncertainties.