VR market collapse, what will Geertek rely on to save itself?
Geertek released its fourth quarter and annual financial report for 2023 (ending in December 2023) after the A-share market closed on the evening of March 27, 2024 Beijing time, with the following key points:
1. Overall Performance: Revenue remains weak, gross profit slightly rebounds. ① Geertek's total revenue this quarter was 24.6 billion RMB, a year-on-year decrease of 19.9%, lower than market expectations (31.2 billion RMB), mainly dragged down by the decline in demand for smart hardware, etc. ② The company's gross profit margin this quarter was 10.6%, a year-on-year increase of 4.4 percentage points, basically meeting market expectations (10.4%). The rebound in gross profit margin was mainly driven by smart acoustics, but overall still remains at a relatively low level. ③ The company's net profit attributable to shareholders this quarter was 200 million RMB, turning losses into profits year-on-year, still lower than market expectations (710 million RMB);
2. Progress of Various Businesses: Weakness in smart hardware, acoustics machine repair. The revenue from smart hardware has been stable at over 50%, being the company's largest source of performance. Therefore, the decline in the second half of the year in the smart hardware business directly affected the overall revenue of the company. After experiencing order adjustments, the acoustics machine business has shown some recovery, but demand has not seen a significant improvement yet;
3. Expenses and Operating Conditions: Inventory is not a problem, mainly in demand. Goertek's inventory has dropped to a relatively low level, mainly through inventory digestion rather than demand-driven. The company's expenses decreased this quarter, mainly due to controlling R&D expenses under performance pressure.
Dolphin's overall view:
Geertek's financial report this time is not very ideal. Both revenue and net profit fell short of expectations, mainly due to the impact of the smart hardware business. The smart hardware business mainly includes VR, PS, and other devices, and has become the company's largest business. Affected by insufficient demand, the double-digit decline in global shipments of VR and other devices directly led to the poor performance of the company in this period.
From the perspective of a manufacturing company, Geertek's inventory has significantly improved this quarter, and the current inventory ratio has returned to a lower level. However, it is worth noting that the decline in company inventory is not demand-driven, but a destocking behavior. Although the inventory level is low, the company does not need to rush production and stocking due to insufficient market demand.
It can be seen that the revenue and gross profit of the smart hardware business already account for more than half of the company's overall performance, so the shipment status of VR and other devices directly affects the company's final performance. Even Apple's new MR products have not ignited the market, affecting overall demandDolphin believes that there is still no sign of Goer's operational improvement and the stock price will continue to hover at a low level. In the current market situation, the company will continue to face relatively weak revenue and gross profit margins. The overall improvement in Goer's performance still needs to pay attention to the recovery of demand in areas such as VR and MR.
Here is Dolphin's specific analysis of Goer's financial report:
I. Overall Performance: Weak Revenue, Slight Recovery in Gross Profit
1.1 Revenue End
In the fourth quarter of 2023, Goer's total revenue was 24.6 billion yuan, a year-on-year decrease of 19.9%, lower than market expectations (31.2 billion yuan). The decline in revenue was mainly dragged down by the decline in smart hardware and precision components businesses.
1.2 Gross Profit End
In the fourth quarter of 2023, Goer achieved a gross profit of 2.606 billion yuan, a year-on-year increase of 35.8%, The decline in gross profit was mainly due to a significant decrease in gross profit margin.
The company's gross profit margin for this quarter was 10.6%, a year-on-year increase of 4.4 percentage points, basically in line with market expectations (10.4%). The recovery in gross profit margin was mainly due to the improved profitability of the smart acoustic whole machine business.
II. Progress of Various Businesses: Weakness in Smart Hardware, Recovery in Acoustic Whole Machine
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 growth of the business, the smart hardware business accounts for over 50% of the company's (revenue and gross profit). The impact of Apple and TWS earphones on Goer's business has relatively weakened, and smart hardware has become the company's top driver of performance.
2.1 Smart Hardware Business
In the second half of 2023, Goer's smart hardware business achieved revenue of 29.39 billion yuan, a year-on-year decrease of 23.2%. The decrease in the company's hardware business was mainly affected by the decline in products such as VR and other virtual reality.
From industry data, the global shipment volume of VR, MR, AR devices in the past year was 6.7 million units, a year-on-year decrease of 23.5%. Although the company has customers and products such as Oculus, Pico, and PS, it is also affected by insufficient overall end demandGoerTek's smart hardware business achieved a gross profit margin of 8.7% in the second half of 2023, a year-on-year decrease of 1.1 percentage points. Insufficient downstream demand directly affects the company's shipments and profitability, with the gross profit margin continuing to be maintained at single digits.
Taking into account the gross profit margin of smart hardware and the overall gross profit margin, the two are becoming more and more convergent. This is mainly due to the fact that the proportion of smart hardware business has exceeded half, which has a significant impact on the company's overall gross profit margin.
2.2 Smart Acoustic Integrated Devices
In the second half of 2023, GoerTek's smart acoustic integrated device business achieved revenue of 14.93 billion yuan, a year-on-year increase of 10.3%. GoerTek's smart acoustic integrated device business is still mainly focused on Apple's TWS products.
According to industry data, the shipment volume of global smart wearable products and TWS earphones both increased by around 2% in 2023. In the absence of significant innovation, the TWS market as a whole is stabilizing. The company's previous business was affected by order adjustments, but has now been somewhat restored.
GoerTek's smart acoustic integrated device business saw its gross profit margin rise to 8.4% in the second half of 2023, a year-on-year increase of 5.9 percentage points. With the recovery of shipment volume and capacity utilization rate, the gross profit margin of the company's smart acoustic integrated devices has also been restored.
2.3 Precision Components Business
GoerTek's precision components business achieved revenue of 7.79 billion yuan in the second half of 2023, a year-on-year decrease of 6.4%. Goer's precision components business mainly includes MEMS, mic, and other electronic devices. This business was originally mainly used in the mobile phone field, and with the introduction of more precision components in smart hardware, it has provided some support to the precision components business.
The gross profit margin of GoerTek's precision components business in the second half of 2023 was 20.4%, a year-on-year decrease of 0.1 percentage point. The company's gross profit margin for precision components remains stable at around 20%.
Image URLs are not translated3. Expenses and Operating Conditions: Inventory is not the issue, the main concern is demand
3.1 Operating Indicators
① Accounts Receivable: In the fourth quarter of 2023, GoerTek's accounts receivable was 12.564 billion yuan, a year-on-year decrease of 12.9%. Looking at the accounts receivable/revenue ratio, GoerTek's ratio for this quarter is 0.51, maintaining at a relatively reasonable level.
② Inventory: In the fourth quarter of 2023, GoerTek's inventory was 10.795 billion yuan, a year-on-year decrease of 37.8%. Looking at the inventory/revenue ratio, GoerTek's ratio for this quarter further decreased to 0.44. The significant decrease in GoerTek's inventory level is due to the impact of weak downstream demand, and the company has accordingly adjusted its inventory reserves. Although the inventory structure is relatively reasonable, this wave of inventory reduction is not demand-driven.
3.2 Expense Ratio
In the fourth quarter of 2023, GoerTek's total expenses amounted to 2.492 billion yuan, a 9.2% year-on-year decrease. The expense ratio is 10.1%, with the decrease in the expense ratio mainly coming from the reduction in sales and research and development expenses.
1) Sales Expenses: This quarter amounted to 0.124 billion yuan, a 21% year-on-year decrease, with a sales expense ratio of 0.5%. The company's sales expense ratio remains around 0.5%, relatively stable;
2) Administrative Expenses: This quarter amounted to 0.804 billion yuan, a 24.3% year-on-year increase, with an administrative expense ratio of 3.3%. Looking at the whole year, the administrative expenses for the full year of 2023 remained relatively stable;
3) Research and Development Expenses: This quarter amounted to 1.373 billion yuan, a 20.9% year-on-year decrease, with a research and development expense ratio of 5.6%. The company's research and development expenses are the largest part of the four expenses, mainly invested in the research and development of the company's intelligent hardware and other precision components. Due to the current weak downstream demand for intelligent hardware, the company has also reduced some of its research and development investment;
4) Financial Expenses: This quarter amounted to 0.191 billion yuan, a 7.3% year-on-year increase, with a financial expense ratio of 0.8%. The change in the company's financial expenses is mainly due to exchange rate effects.
3.3 Net Profit
In the fourth quarter of 2023, GoerTek's net profit attributable to the parent company was 0.196 billion yuan, turning losses into profits, far below the market expectation of 0.71 billion yuan. The main reason for GoerTek's lower-than-expected profit this quarter is the poor performance on the revenue side, mainly due to the drag from the reduced market demand for intelligent hardwareIn the fourth quarter of 2023, the company's net profit margin fell to 0.6%, still hovering around the breakeven point. Due to the relatively weak downstream demand at present, the company's profitability has not seen significant improvement.
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Dolphin Research on GoerTek's historical articles:
Financial Reports
October 27, 2023 Financial Report Review "GoerTek: Profit Decline, When Will It Stand Up?"
April 18, 2023 Financial Report Review "GoerTek: Order Cuts Hit Performance, Can Apple's Little Brother Endure?"
August 30, 2022 Financial Report Review "GoerTek: Why Did VR's Doubling Growth Hit the Pause Button?"
April 27, 2022 Financial Report Review "VR High Growth, GoerTek Guides Strongly Against the Market Again | Reading Financial Reports"
March 30, 2022 Financial Report Review "GoerTek: 'Pulling Down' is Only Temporary, VR is Still the Future"
August 27, 2021 Financial Report Review "GoerTek: 'VR Light' Covers the 'Loneliness' of TWS Earphones"
In-depth Analysis
October 11, 2022 Company In-depth Analysis "Goer's Redemption: Pico Supported by ByteDance"
June 17, 2022 Industry In-depth Analysis "Consumer Electronics 'Matured', Apple Stands Firm, Xiaomi Struggles"
August 20, 2021 Company In-depth Analysis "GoerTek (Part 2): Metaverse is Too Far Away, VR Game Consoles Are Already 'Hot'"July 23, 2021 Company In-depth Analysis "Goer Shares (Part 1): What did the leading company in the fruit chain experience in another sharp decline?"
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