Incident: The company released its 2022 annual report. The company achieved annual revenue of 5.994 billion yuan, +24.47% year on year, and achieved net profit of 179 million yuan, +344.77% year on year, after deducting non-net profit of 149 million yuan, +1420.25% year on year, gross profit margin 12.30%, +2.28pcts year on year.

Revenue grew rapidly and profits were recovering steadily: the global macro boom declined in 2022, consumer demand was weak, the company bucked the trend to achieve rapid revenue growth, profitability recovered quarterly, and the overall trend was improving. New customers and new projects help revenue growth: 1) Electroacoustic has accumulated 70 years of continuous development of high-quality customers represented by major international customers, and orders have increased; 2) the share of original audio customers has increased; 3) vertical integration has expanded from acoustic modules to complete machines; 4) The range is rich, expanding to high-end AI smart speakers, XR acoustics, and car audio. Taking multiple measures to improve profitability: 1) the share of OJM/ODM parts increased profitability; 2) Internal digital construction+management optimization, cost reduction and efficiency were remarkable. 3) The cost of raw materials has declined, the exchange rate of the US dollar against the RMB has increased, and overall profitability has been strengthened. Looking ahead, the company's performance is expected to fully blossom with the optimization and upgrading of the company's traditional acoustics, the reduction of management costs and efficiency, and the smooth development of various fields such as AI speaker/car audio/XR acoustics.

Generative AI is expected to open a new wave of smart speakers, and the company's audio and electroacoustic business welcomes new opportunities:

OpenAI, Baidu, etc. have released big AI models one after another, and smart speakers have ushered in new opportunities for development as an important entry point for AI assistants. The smart speakers manufactured by the company for many Internet companies at home and abroad, such as Baidu, can be equipped with applications such as ChatGPT and Wen Xin Yiyuan, and has carried out many collaborations with customers in the field of AI, and plans to launch GPT-based hardware products within the year. The development of generative AI products is expected to start a new wave of development of interactive intelligent products, which in turn will bring new development opportunities to the company's audio and electroacoustic business.

The accumulation of consumer acoustics empowers vehicles, and car audio has made a breakthrough: the automotive industry is fiercely competitive for audio system upgrades, and the number of speakers has increased exponentially; domestic NEV supply chain changes, and audio production plants directly supply vehicles across brands. With the accumulation of experience in traditional consumer acoustics, the company successfully built a car audio team and achieved a breakthrough. It became a leading customer platform supplier for new energy vehicles in China, and received technical improvement projects and targets for leading automobile customers. The company showed its advantages in the car audio industry. In addition to increasing the share of some customers, it also successfully introduced many leading domestic and foreign car brands as a second-tier supplier. In 2023, the company will welcome mass production of a number of car audio projects. In the future, with the continuous development of new customers and new projects, the company's car acoustics will enter a period of rapid development.

XR acoustics cards are the world leader, and the overall capabilities of the machine are initially showing: the XR industry was under pressure in the short term under the influence of multiple factors in '22, and Apple MR is expected to enter the market+many major new product iterations may grow rapidly in the industry in '23. The company has become an acoustic module supplier for leading VR companies at home and abroad, and has been steadily supplying products to leading VR companies such as M/P customers, and its share is rising steadily. The company has built a VR workshop with VR machine production capacity. In the future, with the popularization of large AI models, XR terminal shipments are expected to grow rapidly. The company's leading global customers are moving from acoustic modules to complete machines, and have broad room for growth.

Investment advice: The company's profits have been steadily recovering, and downstream AI speakers and car/VR acoustics have blossomed more. We judge that performance is expected to usher in a period of rapid growth. We expect the company's net profit of 23/24/25 to be 2.22/36/501 million yuan, EPS to be 0.37/0.61/0.85 yuan/share, and the corresponding PE multiplier to be 44.68/27.51/19.76 times, maintaining the “increase in holdings” rating.

Risk warning: The progress of industrialization of new products falls short of expected risks; the risk of automobile demand falling short of expectations; the risk of falling consumer electronics demand; exchange rate risk; risk of trade friction; risk of raw material supply and price fluctuations.