The company announced that 2022Q4 achieved revenue of 1,423 million yuan, or -3.0% year on year; net profit after deducting non-return to the mother was 61 million yuan, +16.6% year on year. 2023Q1 achieved revenue of 1,215 million yuan, +11.1% year on year; net profit after deducting non-return to the mother was 31 million yuan, +28.2% year on year, in line with market expectations. The company's performance has steadily improved, mainly due to the rapid launch of the new energy business, the improvement in the cockpit component product structure, and the restoration of the profitability of the combined weighing equipment business. We maintained the 2023/2024 net profit forecast of 213.272 million yuan after deducting non-return to the mother, added the 2025 net profit forecast of 335 million yuan, and gave the company a 2023 forecast of 23 times PE after deducting the net profit of non-return to the mother, corresponding to the target price of 37 yuan, maintaining the “buy” rating.

Net profit after deducting non-return to the mother increased year on year, and operations continued to improve. The company announced that 2022Q4 achieved revenue of 1,423 million yuan, or -3.0% year on year; net profit after deducting non-return to the mother was 61 million yuan, +16.6% year on year. The company's non-recurring losses in 4Q22 mainly come from the accounting treatment brought about by the acquisition of Junsheng Qunying. They are affected by non-operating factors, so deducting net profit that is not attributable to the mother can better reflect the company's operating level. The company's performance has been steadily improving, mainly due to the rapid expansion of the new energy business, and the revenue share of this business has increased to 11.5% in 2022; at the same time, the profitability of the company's weighing equipment business has been repaired, and the gross margin of the business reached 31.6% in 2022, +5.4 pcts over the previous year. 2023Q1 achieved revenue of 1,215 million yuan, +11.1% year on year; net profit after deducting non-return to the mother was 31 million yuan, +28.2% year on year. The performance was in line with market expectations. Looking ahead to 2023, the company's profitability is expected to increase further as the market share of the company's cockpit components among luxury brands continues to expand, the revenue share of high-value products continues to rise, and the new energy business grows rapidly.

Gross margin increased year over year, and R&D investment continued to increase. The 4Q22 company's gross margin was 26.6%, +3.1pcts year on year and +2.6pcts month-on-month, mainly due to the optimization of the auto parts product structure and the improvement in the operating efficiency of the superimposed weighing equipment business.

The company's fee rate for 4Q22 was 19.0%, -2.7pcts year on year and +3.0 pcts month-on-month. Among them, the sales expense ratio was 3.9%, +1.0pct over the previous year; the management expense ratio was 6.2%, the year-on-year -5.6 pcts; the R&D cost rate was 6.9%, +2.3pcts over the previous year, mainly due to the company's continuous increase in R&D investment in smart cockpit components, new energy charging and distribution systems, etc.; the financial expense ratio was 2.0%, compared to -0.4 pct over the previous year. The company's gross margin in 1Q23 was 24.7%, +1.9 pcts year on year and -1.9 pcts month on month. The fee rate was 18.3%, +0.2pct compared to the previous year. Among them, the sales expense ratio was 3.3%, +0.5pct over the previous year; the management expense ratio was 6.8%, the year-on-year -1.0 pcts; the R&D expense ratio was 6.0%, +0.4pct; and the financial expense ratio was 2.2%, +0.3pct over the previous year.

Cockpit components have been intelligently upgraded, and new energy customers are continuously developing. The company is a leading supplier of automobile cockpit components in China, and its air conditioning vent market share is the highest in China and the world's leading. The company is committed to integrating electronic control units and touch units into interior component products to improve their level of intelligence. The value of bicycles is expected to increase by more than 20%. Related products have already received orders for business class models on the road, achieving targeted breakthroughs. The company continues to break through new energy customers and bid for luxury trim projects for the world's leading new energy OEMs in mid-2022. The total life cycle of the project exceeds 2 billion yuan. Furthermore, the company has broken through the support of leading new car builders such as NIO and Ideal, and has received honors such as Ideal Auto's Best Supplier Award and NIO's Excellent Quality Cooperation Award. In the first half of 2022, NIO became the company's fifth largest customer, accounting for 1.49% of revenue.

Revenue from the new energy business is growing rapidly, and there are plenty of on-hand orders. The company focuses on developing new energy business. Existing products include smart charging piles, BDUs, PDUs, charging port high-voltage harnesses, etc. The company is one of the first domestic suppliers of smart charging stations for Volkswagen MEB platform models, and has been selected by high-quality customers such as SAIC Motor Passenger Vehicle and SAIC GM. In terms of charging piles going overseas, the company completed European standard charging pile certification in 2022 and continues to promote American standard charging pile certification. In the first quarter of 2023, the company's overseas charging station business began to contribute revenue. Furthermore, the company plans to increase the annual production capacity of the Mexican production line to 1 billion yuan to better serve the world's leading NEV companies. In 2022, the company's new energy business achieved revenue of 556 million yuan, +143% year on year. By the end of 2022, the total order amount for the entire life cycle of the company's new energy business was about 14.5 billion yuan, and there were plenty of orders on hand. As subsequent projects are mass-produced and delivered one after another, we expect the business to continue to grow rapidly.

Risk factors: risk of declining sales in the automotive industry; the penetration rate of new energy vehicles falling short of expectations; risk of company technology and product iteration; risk of impairment of goodwill; risk of management and integration.

Investment proposal: The company's automobile cockpit components continue to break through new energy customers, have broken through the support of leading new car builders such as NIO and Ideal, and won bids for luxury trim projects from the world's leading new energy OEMs. The company's new energy business revenue is growing rapidly, the product matrix is constantly being enriched, and customers are of high quality. Considering the company's non-recurring losses due to changes in the fair value of financial assets, we believe that net profit that is not returned to the parent can better reflect the company's profit level. We maintained the company's net profit forecast of $213.272 million after deducting non-return to the mother for 2023/2024, adding an additional net profit forecast of $335 million after deducting non-return to the mother for 2025. According to Wind's unanimous expectations of Xinrui Technology, Imbor, and Huguang Co., Ltd., the average PE value of comparable companies in 2023 is about 27 times. Considering that the net profit growth rates of Xinrui Technology, Incol, and Huguang Co., Ltd. in 2023-2025 reached 58%/63% /53% respectively (based on Wind's consistent expectations), and that the company's automotive smart cockpit components and scales business has formed a large business scale, the net profit growth rate of 2023-2025 after deducting non-return mother's net profit is expected to be 26%, which is lower than that of comparable companies mentioned above. Therefore, we conservatively gave the company a 2023 forecast deducting 23 times PE from the net profit of the parent, corresponding to the target price of 37 yuan to maintain the “buy” rating.