Incident: The company released the 2023 Q1 quarterly report. The Q1 company achieved total revenue of 10.75 billion yuan, +26.22% year on year, and achieved net profit of 60.2 billion yuan to the mother, +40.98% year on year.

Q1 Gross margin increased year on year, and fee control ability improved: Q1 The company's gross margin was 19.15%, +2.09pct over the same period last year. We believe that the reason for the increase in gross margin is: 1) lead-acid battery products have been iteratively updated, and the selling price has increased; 2) the reduction in product costs has increased profits. Q1 The company's sales expense ratio was 2.51%, -0.17pct compared to the previous year. The management fee rate was 2.50%, +0.08pct over the same period last year. The R & D cost rate was 3.50%, -0.41 pct over the same period last year. Financial expenses rate -0.21%, year-on-year -0.54 pct. The reason for the decline in the company's sales expense ratio, R&D expense ratio, and financial expense ratio is the increase in the overall revenue scale, which has diluted various expense ratios. The reason for the slight increase in management expense rates was an increase in employee compensation.

Rooted in lead-acid batteries, vigorously developing lithium batteries, and exploring new battery technologies such as fuel cells and sodium electricity: 1) In the lead-acid battery field, the company continues to strengthen close cooperative relationships with mainstream electric light vehicle manufacturers. At the same time, facing the huge replacement market, the company provides end users with a full range of services such as maintenance and replacement through a complete sales service network composed of more than 3,000 dealers. Furthermore, the large-scale expansion of China's energy storage industry has provided a favorable policy environment for lead-carbon battery technology in the field of energy storage business. The company reached a “Strategic Procurement Cooperation Agreement for Energy Storage Projects” with Taihu Energy Valley on December 12, 2022. The Taihu Energy Valley will supply 30 Gwh of lead-carbon battery cells in the next three years. 2) In the lithium battery field, the company not only developed the lithium battery light electric vehicle business, but also used the energy storage business as an important breakthrough in the lithium battery business. 3) In the field of hydrogen fuel cells, the company's Shuyang base with an annual production capacity of 3,000 sets of fuel cell systems and components will be put into operation within 2023. 4) In the field of sodium electricity, the company has built a 300MW pilot production line to continue to push up the overall production capacity.

Investment advice: We expect the company to achieve net profit of 2,455/30.05/3.605 billion yuan in 2023-2025. The corresponding PE was 13.54/11.06/9.22 times, respectively. It was covered for the first time and gave an “increase in holdings” rating.

Risk warning: risk of large fluctuations in raw material prices; risk of increased market competition; new battery technology falling short of expectations.