Intron (01760.HK) reported a 20.1% YoY increase in revenue to HKD 58.02 billion in FY23, but its GM fell 2.9% YoY to HKD 18.7 billion, below our expectations. The decline in GM and increased R&D expenses led to a 23.0% YoY drop in net profit. The company's revenue growth slowed down across all segments, with the exception of its新能源汽车 segment, which grew 58.8% YoY. However, the competition激烈， leading to manufacturers adopting lower-cost or lower-specification solutions, resulting in slower ADAS penetration and slower growth for the company. Intron's "cost + 20%" pricing strategy has been adjusted to "work with upstream and downstream partners to tide over difficulties," which means the company is facing intense price competition from downstream partners. This has resulted in a 17.1% YoY increase in general and administrative expenses, putting pressure on the company's margins. The company's net debt-to-equity ratio has increased to 48.1% due to prepayments for fixed assets in Nantong and inventory levels normalizing after the chip shortage era. However, we expect the company's leverage to peak soon as Nantong's capital expenditure decreases and cash conversion cycles improve. The company's毛利率 and net profit margin are expected to be negatively impacted by higher financing costs. We maintain our "Buy" rating with a target price of HKD 2.85, but we have downgraded our earnings estimates by 51%-58% due to the severe challenges the company is facing, including lower general and administrative expenses, higher financing costs, and lower profitability.
