The 2024 forecast net profit attributable to the parent company slightly exceeded our expectations

The company announced the 2024 performance report: the revenue in 2024 will be 68.743 billion yuan, a year-on-year increase of 10.35%; net profit attributable to the parent company was 5.59 billion yuan, a year-on-year increase of 0.96%; deducted non-net profit of 4.609 billion yuan, a year-on-year decrease of 10.21%. In Q4, the revenue was 17.492 billion yuan, a year-on-year decrease of 9.24%; net profit attributable to the parent company was 1.687 billion yuan, a year-on-year increase of 2.07%; deducted non-net profit of 1.361 billion yuan, a year-on-year decrease of 16.24%. The 2024 forecast attributable to the parent company slightly exceeded our previous expectations, mainly due to the increase in non-recurring profit and loss.

Key Points of Concern

Shipments in emerging markets continue to grow, while gross margins are under pressure from industry competition and rising raw material prices. According to Canalys, Transsion's global smartphone shipments in 2024 will increase by 15% year-on-year to 107 million units, and its market share will increase by about 1ppt year-on-year to 9%, ranking fourth. In terms of regions, in 2024, the company's shipments in Southeast Asia, Latin America and the Middle East will increase by 41%/40%/9% year-on-year respectively, ranking third/fourth/second respectively, and the continuous growth of shipments in emerging markets will drive the company's revenue in 2024 to increase by 10.35% year-on-year. In 2024, the year-on-year increase in net profit attributable to the parent company will be smaller than that of revenue, and we judge that the gross profit margin will be under pressure due to fierce competition in the industry and the impact of rising raw material prices.

Actively deploy device-side AI, and its Infinix is connected to the DeepSeek-R1 large model. The company's Infinix brand has been connected to the DeepSeek-R1 full blood version, which is deeply integrated with the Folax voice assistant through voice or text; In terms of specific models, Infinix models that support XOS 14.5 and above will be available as an upgrade starting February 26, and the new NOTE series to be released in March will also be connected to DeepSeek-R1. In addition, the company is actively deploying the "Infinix AI∞Beta All-Scenario Strategy", which is committed to building an AI technology system covering games, life, AI mobile phones and AIoT all-scenario devices.

We are optimistic about the long-term growth potential of emerging markets and have a long-term diversified business layout. We believe the company has a solid market share in the African smartphone market and has the potential for continued growth in emerging markets. Looking ahead to 2025, we are optimistic about the continued growth of the company's smartphone shipments and the deployment of AI on the device side to help the high-end process. At the same time, the company is also actively exploring in the fields of category expansion and mobile Internet, and we are optimistic that the diversified business layout will continue to contribute to the increase in performance and form a second growth curve.

Earnings Forecast & Valuation

Taking into account the increase in non-operating profit and loss, we raise our 2024 earnings forecast by 5.3% to $5.59 billion. The 2025 profit forecast was basically unchanged, and the 2026 profit forecast was newly introduced at 7.065 billion yuan. The current share price corresponds to 17.8x/15.8x P/E in 2025/2026. Maintain the Outperform rating and target price of $110 unchanged, corresponding to 20.1x/17.8x P/E in 2025/2026, with 12.6% upside from the current share price.

Risks

Poor global demand for mobile phones, overseas macroeconomic downturn and inflation risks, slow progress of Internet business, rising raw material prices, and intensified competition in the industry.