Incident: On January 29, 2024, the company released the “2023 Annual Performance Forecast”. The company expects to achieve operating income of 13.5-1.42 billion yuan in 2023, with a year-on-year increase of 24.1%-30.6%, net profit to mother of 0.38-50 million yuan, an estimated year-on-year increase of 201.0%-232.9%, after deducting non-net profit of 0.28-40 million yuan, and an expected year-on-year increase of 149.3%-170.4%. The full-year results turned a loss into a profit, in line with expectations.

Fourth quarter results grew steadily, and the company's business conditions continued to be optimized. Looking at 2023Q4 alone, the company expects to achieve operating income of 421-491 million yuan, the center is expected to achieve net profit of 753.62-19.5362 million yuan, the center is +144.5% year-on-year, and is expected to deduct non-net profit of 103.25-13.325 million yuan, or +115.9% year-on-year. 2023Q4 estimates that Shanghai Kegang's credit depreciation was 20-25 million yuan, which affected the company's fourth quarter results. The increase in the company's profitability in 2023 is mainly reflected in the large-scale effects of the suspension spring business, combined with continuous optimization of the company's internal management system, an increase in overall product margin, and continuous optimization of business conditions.

The level of profit was gradually restored, and the field of high-end springs was increased. In the first three quarters of 2023, the company's gross sales margin was 18.09%, +3.57pct year on year, and the net sales margin was 2.14%, +4.81pct year on year. In October 2023, the company successfully competed for 69.04% of Shanghai Nuclear Engineering's shares, increasing the field of high-end springs. Shanghai Nuclear Engineering is a company specializing in the production of disc springs, wave springs and their extended products. The products can be used in various industries such as machinery, nuclear power/valves/aerospace/power and electricity, steel, etc. It is expected that the high-margin disc spring business will also help improve the company's overall profit level.

Benefiting from high demand for new energy vehicles, we continue to develop downstream customers. In 2023, China's automobile production and sales volume reached 301.61 million units and 30.94 million units respectively, +11.6%/+12.0% year-on-year, respectively. Both annual production and sales reached record highs. Among them, new energy vehicles are the highlight of the car market. Production and sales volume in 2023 were +35.8%/+37.9%, respectively, and the market share reached 31.6%. At present, the company has formed stable cooperative relationships with first-tier supply companies such as Geely/BYD/BMW/Ideal/NIO. The company actively adapts to the trend of automobile lightweighting, independently develops ML1900 new material technology, and actively explores the application possibilities of high-end springs in the field of robotics, and is committed to providing new impetus for the company's future performance growth.

Investment advice: The company is a leading domestic high-end spring manufacturer. As the moderate recovery of the macroeconomy gradually spreads to the automobile market, the good performance of NEV and automobile exports has helped drive the industry to continue to grow steadily. It is expected that the company will continue to benefit from high downstream demand, and the suspension spring business will gradually achieve large-scale effects, which is expected to drive an increase in profit levels. We believe that the company is expected to maintain a good growth trend in the next 3-5 years. The company is expected to achieve net profit of 0.50/0.97/186 million yuan in 2023-2025, which corresponds to PE of 38.9/20.1/10.5 times, maintaining the “increase” rating.

Risk warning: risk of changes in the industry environment; risk of fluctuations in raw material prices; risk of mergers and acquisitions, etc.