Incident: The company released the 2023 performance forecast and achieved net profit of 1.5-184 million yuan for the whole year, +22.5-50.3% year-on-year. Among them, 23Q4 achieved net profit of 0.41 to 75 million yuan, +7.9-97% year-on-year, and -12.8-59.6% month-on-month, which was better than expected.

The product range is rich, and the share of new energy sources continues to increase: The company is a leading supplier in the domestic automotive hose industry. It has nine series of products, including automotive cooling system hose assemblies, multi-layer composite nylon hoses, and turbocharger pipeline assemblies. It has mastered the core rubber formulation process and in-house production capacity of key components such as three-way joints, joints, and clamps, with obvious profitability advantages. Benefiting from increased demand in the NEV industry, continued release of production capacity, increased market share, and increased NEV revenue share, 23H1's NEV ancillary products accounted for one-third of the main business, up about 6.3pp from '22 and 24.7pp over '21. At the same time, the company continued to further optimize the product and customer structure to give full play to the business scale effect. The sales share of the top five major customers continued to increase, and the target situation of new product projects continued to increase compared to the previous year.

Cost control is effective, and operating efficiency continues to improve: The company continues to promote lean management and intelligent equipment transformation, increase the proportion of localization of key components, etc., to reduce energy consumption, reduce costs and increase efficiency. The overall cost ratio has been further reduced, and management efficiency and operating results have been steadily improved. The cost rate during 23Q1-3 was 8.98%, -0.07pp. Among them, the Q3 fee rate was 7.98%, -0.18pp, and -1.17pp month-on-month. It continued to decline, and the cost control results were remarkable.

Production capacity continues to expand, and new businesses are building a new growth pole: the company is building a “incremental (manufacturing) capacity expansion project for traditional automobiles and new energy vehicle parts” with a design capacity of 2 billion yuan. By the end of 23Q1, the first phase had been completed and put into use. 23H1 achieved an output value of 84.29 million yuan. The second phase of the plant is under construction, and some of the plants were put into use at the end of 23. The company is gradually expanding cooling pipeline systems used in energy storage, big data supercomputing, etc., and pipeline systems in rail transit, oil and gas exploration, ships, etc., and has diversified product categories. Products in the energy storage field have established business negotiations or cooperative relationships with more than 40 customers, and batch delivery has been achieved. The data center pipeline system is also progressing smoothly and being implemented according to customer procedures. The new field is expected to become a new growth point for the company's performance in '24.

Profit forecasting and investment advice. The company's EPS for 23-25 is estimated to be 0.76/1.07/1.42 yuan, corresponding PE is 19/14/10 times, and net profit CAGR to mother is 36.2%, maintaining a “buy” rating.

Risk warning: risk of fluctuations in raw material prices; risk of industry downturn; risk of increased market competition.