On March 21, Ruisheng Technology (2018.HK) held a press conference on the 2023 annual results in Hong Kong.

For the full year of 2023, Ruisheng Technology's revenue was RMB 20.42 billion, gross margin was 16.9%, and net profit was RMB 740 million. Among them, revenue for the second half of the year was RMB 11.2 billion, gross margin was 19.2%, and net profit was RMB 590 million, up 25.2% year on year.

Guo Dan, CFO of Ruisheng Technology, said at the conference that demand in the middle and high-end smartphone market recovered first in the second half of last year. Ruisheng Technology's performance reached an inflection point, and it is expected that business performance in acoustics, optics, and structural components will continue to improve in 2024. Overall revenue is expected to increase by 10-15% in 2024, and the comprehensive gross profit level will return to more than 20%.

Furthermore, Ruisheng Technology's automotive business will also usher in significant progress. According to Guo Dan, the acquired PSS company will begin implementing financial consolidation after the first settlement is completed in February this year, bringing in revenue contributions of 3 to 3.5 billion yuan in the automotive business and achieving a net profit of about 200 million yuan. PSS covers most high-end European and American car companies, leading the industry in terms of customer relationships and product innovation. After integration, PSS will lead the development of the entire automotive business, and AAC itself will focus more on investing and developing its own resources such as algorithms and amplifiers. At the same time, the acquisition of PSS will also help to introduce other products more quickly into the automotive field and the global layout of the company's overall business in the future.

Revenue is expected to increase by 10-15% in 2024, with a comprehensive gross profit margin of more than 20%

Guo Dan said that the outlook for global smartphone market shipments in 2024 is still quite cautious, but the middle and high-end mobile phone markets are seeing a trend of upgrading regulations. For us, this will see better top-line growth, especially for our ASP, and our profit margins will also be better supported.”

According to Guo Dan, the acoustics and electromagnetic transmission businesses are expected to benefit from the upgrading of mid-range and high-end mobile phones, the expansion of the company's new innovative products in the field of acoustics, and the rapid development of new fields such as shaft cooling. The acoustics division is expected to have a gross margin level of 25-30% in 2024; the electromagnetic transmission and precision structural components division is in the 20-25% margin range.

Furthermore, Ruisheng Technology's optical business will improve steadily in 2024. In terms of plastic lenses, the optical industry has returned to a relatively healthy competitive trend, and Ruisheng Technology's share of 5P, 6P and above high-end products has gradually increased. In terms of WLG glass-plastic hybrid lenses, the production yield is steadily increasing. “Our cumulative shipment volume of WLG is close to 8 million, of which 3 million are 1G6P. Whether in terms of optical performance or technical difficulty, they are also comparable to 7P plastic lenses, which is also a demonstration of our technical level.”

“Under the relatively positive outlook of different divisions, the Group's overall revenue top line will increase by 10-15% in 2024, and comprehensive gross profit will also return to a healthy level of 20% or more.” Guo Dan further stated that compared with a few years ago, this comprehensive gross profit is brought about by a more diversified layout of different product lines and a more stable product portfolio, which can better support the long-term steady development of the company's performance.

The precision structural parts sector is expected to continue to grow rapidly

Financial reports show that in 2023, Ruisheng Technology's metal frame revenue increased by 34.3% year-on-year, its shipments and ASP both achieved double-digit increases, and continued to maintain leading market share among high-end and flagship models of major customers. In the second half of 2023, mass production and shipment of shaft products began, with annual shipments of nearly 700,000 units. Furthermore, revenue from cooling products increased by more than 100% year over year.

Guo Dan said that the company's precision structural parts business has been developing well in the past two years, growing by more than 1 billion yuan year by year, much of which is due to the rapid growth of the metal frame business. However, after acquiring Dongyang Kunshan Precision, the company entered the laptop business for North American customers, and has also contributed to a relatively steady business volume over the past two years.

In addition, the shafts used in folding machines have also become Ruisheng Technology's new growth engine. According to Guo Dan, Ruisheng Technology's shaft revenue increased by more than 300 million yuan in 2023. Revenue from cooling doubled year-on-year in 2023. Thanks to improvements in mobile phone chip functions, the requirements for cooling performance are getting higher and higher.

Guo Dan revealed that Ruisheng Technology is expected to continue to grow rapidly in the shaft and cooling business this year, and the entire precision manufacturing sector will see broader performance improvements in the future.

PSS will contribute 3-3.5 billion in automotive business revenue

The reporter learned that Ruisheng Technology has been actively developing the second growth curve in recent years and began entering the automotive sector in 2021.

The reporter learned at the press conference that in February of this year, Ruisheng Technology completed the acquisition of 80% of Premium Sound Solutions (PSS), a world-renowned supplier of automotive acoustic products. Guo Dan said that by combining PSS's rich products, global production layout, and stable supply relationships with global OEMs, Ruisheng Technology will provide innovative high-quality audio system solutions and accelerate penetration into the global automotive industry.

“We expect PSS to contribute 3 to 3.5 billion yuan in revenue this year and achieve a net profit of around 200 million yuan.” Guo Dan said.

Regarding the further layout of the automotive sector, Ruisheng Technology's management said that the automotive business and mobile phone business actually have a lot in common. In the future, the company will not only stop at acoustics, but will also enter optical and other aspects, and will have a more advanced development layout.

Furthermore, in terms of AR/VR business, Ruisheng Technology's XR acoustic solutions have been shipped to many of the world's leading XR companies, and motor-related businesses are progressing in an orderly manner with customers.

Free cash flow of $3.81 billion, the highest level since listing

It is worth mentioning that as of December 31, 2023, Ruisheng Technology's operating cash inflow was RMB 4.63 billion, an increase of 6.0% over the previous year, a record high of nearly 5 years. Capital expenditure was RMB 1.38 billion, down 25.4% year on year; free cash flow was RMB 3.81 billion, the highest level since listing. Cash on book was RMB 6.82 billion, and the net balance ratio was 5.1%. The number of inventory turnover days dropped from 109 days to 80 days.

“We believe that a steady cash position can better support the company's long-term strategic layout in new business areas, and is also very helpful in supporting PSS's mergers and acquisitions.” According to Guo Dan, after Ruisheng Technology's merger and acquisition, the company's leverage ratio did not increase significantly. Half of the company's acquisitions were supported by its own cash flow, and the overall financial situation was very stable.

Guo Dan stressed that Ruisheng Technology will continue to adhere to prudent financial management policies and strictly manage capital expenses and operating expenses. A sound financial situation is critical to the sustainable development of Ruisheng Technology and lays a solid foundation for future innovation and development.