Intron Earnings: Gross Margin Squeezed Due to Auto Competition; Fair Value Cut 31% to HKD 4.60

Intron Technology’s 2023 result showed continued strong revenue growth of 20%, driven by electric vehicles and automated vehicles, with Intron’s second-half revenue growth of 15% year on year still impressive. However, several factors, including pressure on gross margins and a large increase in research and development costs and interest expenses meant this strong revenue growth was not reflected in net profit, which fell by 24% on a full-year basis. The 2023 dividend declined to HKD 9.8 cents per share from HKD 13.1 cents per share in 2022, with the dividend payout ratio of 30% remaining constant. We retain our view that a dividend is unnecessary for this company, given the high growth nature of the business driving cash flow concerns. We lower our fair value estimate to HKD 4.60 per share from HKD 6.70 following the result, due to reduced revenue and gross margin forecasts.