2023 results are in line with our expectations

The company announced its 2023 annual report: revenue of 3.888 billion yuan, +1.14% year over year; net profit to mother of 1,024 million yuan, +1.72% year over year. 4Q23 revenue was 1.08 billion yuan, -1.10%/+12.07% YoY; net profit to mother was 310 million yuan, -1.85%/+38.50% YoY. The results were in line with our expectations.

Annual revenue improved in 4Q23 due to pressure on PV demand. The company's revenue increased 1.14% year on year in '23, and the growth rate was significantly slower than in '22. Mainly due to high European inverter inventories, customer shipments and corresponding component orders weakened in the second half of the year. We have seen initial results in 4Q23 downstream inventory removal. Data from the General Administration of Customs shows that the value of inverter exports changed from negative to positive in November and December, and there was a seasonal decline in January and February. We believe that downstream inventory is expected to be digested from the end of Q1 to Q2, driving the company's revenue from photovoltaics back to a normal growth channel.

Demand for new energy vehicles continues to grow at a high rate. According to the China Automobile Association, domestic NEV shipments increased by 37.5%/37.1%/29.3% year-on-year in '23/4Q23/1M24 respectively. The growth rate has slowed, but it is still one of the most growing downstream segments. At the same time, Gaogong expects the market penetration rate of 800V high-voltage platform models to exceed 30% in 24. We believe that with leading technology and capacitor products, the company has an advantage in high-voltage platforms, and its share is expected to continue to rise steadily.

The gross margin increased year-on-year for the whole year, and the ability to control costs was strong. The company's gross profit margin in '23 was 38.58%, +0.27ppt year on year, mainly due to lower raw material costs and production process optimization to offset the impact of product price reductions.

The 4Q23 gross profit margin was 38.26%, or -0.17ppt month-on-month. We determined that the main reason was the increase in the share of automobiles and the implementation of new prices at the end of the year, but the small decrease reflects the company's good ability to optimize costs.

Development trends

The company is the core beneficiary of new energy sources. The industry is booming and the company's production capacity continues to expand. We believe that as a global leader in thin-film capacitors, the company has technology and brand premiums, and is expected to maintain leading product iteration capabilities. At the same time, the increase in the level of automation and the decline in upstream material costs are beneficial to the company's profit release. We are optimistic about the company's high growth due to increased demand and brand strength.

Profit forecasting and valuation

Considering downstream inventory removal and increased competition in the industry, we lowered 2024 revenue/net profit to mother by 6.3%/11.3% to 4.783 billion yuan/1,304 billion yuan, and introduced 2025 revenue/net profit to mother of 5.630 billion yuan/1,374 billion yuan. The current stock price corresponds to 2024/2025 P/E 19.2x/16.8x.

Due to the restoration of the industry valuation center, it maintained an outperforming industry rating and a target price of 135.75 yuan, corresponding to the 2024/2025 P/E 25.4x/22.3x, which is a 32.4% increase from the current stock price.

risks

Demand for new energy sources falls short of expectations; industry competition intensifies; risk of declining gross margin.