The company achieved revenue of 107.186 billion yuan in 2022, +20.36% year on year, net profit of 1,858 billion yuan, -19.58% year on year; 2023Q1 achieved revenue of 26.375 billion yuan, +26.00% year on year, and net profit of 459 million yuan, +154.85% year on year. Looking ahead to 2023, we expect the growth rate of Android revenue in the company's consumer electronics business to be relatively stable, the share of major North American customers is expected to continue to increase, and revenue from the new smart products and new energy vehicles business is expected to continue to grow rapidly. We are optimistic about the company's overall competitiveness as an intelligent manufacturing platform for a long time and maintain a “buy” rating.

Revenue grew steadily in 2022, and profitability was under short-term pressure. The company achieved revenue of 107.186 billion yuan in 2022, +20.36% year on year, with significant increases in all three sectors; the net profit of Gumo was 1,858 billion yuan, -19.58% year on year; gross profit margin was 5.92%, -0.85pct year on year. Mainly due to changes in product structure, the share of assembly OEM revenue with low gross margin increased. We expect that the company's consumer electronics business revenue will continue to grow in 2023 (Android is relatively stable, and the share of major customers in North America is expected to continue to increase), revenue from the new smart products and new energy vehicles business is expected to grow rapidly, the product structure is expected to be further optimized, and the overall business situation is expected to continue to improve.

Focus on 2023Q1: Revenue and net profit to the mother were +26.00%/+154.85% compared to the same period last year, and gross margin increased significantly.

The company achieved revenue of 26.375 billion yuan in 2023Q1, +26.00% year on year, and net profit of 459 million yuan to the mother, +154.85% year on year. The company's gross profit margin of 2023Q1 was 7.70%, +2.23pcts year on year, +1.51 pcts month-on-month. We think this is mainly due to the increase in the share of high-margin products such as the company's automobiles and new smart products, as well as the increase in the capacity utilization rate of the company's structural parts/assembly business, which brought about a recovery in gross margin.

Consumer electronics: Structural components are under pressure due to the influence of the Android terminal, and assembly continues to expand in the A customer market. 1) Structural components: Revenue in 2022 was 14.155 billion yuan, -9.58% year on year. Mainly due to the weak consumer electronics market, mobile phone shipments of Android customers were under pressure. Looking ahead to 2023, the Android version is expected to remain stable; for major North American customers, the company's share of structural parts is expected to continue to increase as the company's new categories of structural parts projects are successfully introduced into mass production. 2) Assembly: Revenue in 2022 was 68.054 billion yuan, +21.57% year on year, mainly due to continued growth in tablet assembly business for major North American customers. As the company's overseas production capacity is put in place one after another, the company and major North American customers are expected to further deepen cooperation, continue to expand their smart terminal models, and continue to increase their share.

New intelligent products: Cooperate with top customers in various industries, household energy storage is growing rapidly. The revenue of the new smart products business in 2022 was 15.207 billion yuan, +22.19% year on year, accounting for 14.19%. The company continues to deepen its layout in business segments such as household energy storage, smart homes, gaming hardware, drones, etc., continues to promote cooperation with customers in various industries, and product shipments continue to grow. In terms of household savings, the company has been deeply involved in overseas markets for many years. Benefiting from the explosion in demand brought about by favorable policies introduced by various countries to promote household energy storage, the company's shipments of household energy storage products increased rapidly during the year. We expect to maintain a high growth rate in 2023. Furthermore, the company cooperates with leading drone manufacturers, and shipments in the fields of consumer drones, industry drones, and agricultural drones continue to grow, and market share continues to increase.

New energy vehicles: Revenue doubled in 2022, and the high growth rate is expected to continue. The revenue of the NEV business in 2022 was 9.263 billion yuan, +145.71% year on year, accounting for 8.64%. Benefiting from the accelerated development of intelligent and connected vehicles and the rapid growth of the parent company's NEV sales, the company's shipments of smart cockpits and smart connected products have increased dramatically. Currently, the company has multiple product lines in the fields of ADAS, smart cockpits, automotive connectivity, smart vehicle appliances, thermal management, domain controllers, and interior and exterior parts. We expect that the parent company's sales of new energy vehicles will continue to grow at a high rate in 2023, and the company's automobile business revenue is expected to continue growing rapidly.

Risk factors: The risk that the sales volume of the company's major consumer electronics customers falls short of expectations; the risk of increased competition in the industry; the risk that R&D progress of the company's key projects falls short of expectations; the risk that the parent company's NEV sales fall short of expectations.

Investment advice: Looking ahead to 2023, we expect the company's consumer electronics business revenue to continue to grow (Android is relatively stable, and the share of major customers in North America is expected to continue to increase), revenue from the new smart products and new energy vehicle business is expected to continue to grow rapidly, the product structure is expected to be further optimized, and profitability will continue to improve. Considering that consumer electronics demand in 2023 is still relatively weak, we slightly adjusted our net profit forecast for 2023/24 to $26/3.7 billion (the original forecast was $30/3.7 billion), and the additional net profit forecast for 2025 was $4.8 billion. The corresponding EPS forecast was HK$137/1.94/2.53, respectively. From a valuation perspective, the average PE value of A-share fruit chain companies such as Lixun Precision, Changying Precision, and Lingyi Intelligent Manufacturing in 2023 was 22 times. Based on prudential principles, we gave the company a target PE of 20 times for 2023, corresponding to the target price of HK$27, maintaining a “buy” rating.