2023 results are in line with our expectations

The company announced 2023 results: the full year of 2023 achieved revenue of 1.26 billion yuan, a year-on-year increase of 4.6%; 4Q single-quarter revenue of 392 million yuan, up 5.6% year on year; net profit to mother for the full year of 2023 was 180 million yuan, up 19.55% year on year; net profit from 4Q was 52 million yuan, up 8.0% year on year; the company's 2023 results met our expectations.

The revenue structure has improved dramatically, with automotive electronics accounting for more than half of the revenue. Looking at the structure, the company's automotive electronics/smart consumption/communication/medical and personal care revenue was 6.3/2.8/1.2/0.48 billion yuan, respectively, or +33.4%/+1.68%/-26.8%/-40.3%, accounting for 52%/23%/10%/4%, respectively. While the company's revenue structure has improved and revenue stability has improved, profitability has remained stable. The gross margin achieved by 1-4Q23 in a single quarter was 27.12%/28.77%/30.04%/29.55%, respectively, and the comprehensive gross profit margin for 2023 was 29.05%, down slightly from 29.76% in the same period last year.

Development trends

Strong growth in the automotive electronics Tier 1 business became the company's basic market. Since the company transitioned from Tier 2 to Tier 1 of automotive electronics, the automotive electronics business revenue has maintained a compound growth of more than 30%. The company has successively developed and entered domestic NEV customers such as BYD, Great Wall, and “Wei Xiaoli” to provide them with “precision gear+motor+ECU module” integrated soft-hardening products. Currently, core automotive electronics products include in-vehicle motion screens, car hidden door handles, automobile active lift spoiler, automobile thermal management actuators, vehicle radar, electronic parking (EPB), etc., in line with the trend of increasing “peer-to-peer intelligence” penetration of new energy vehicles. During the reporting period, we were concerned that the company completed research on precision manufacturing technology for high-performance PEEK plastic gears to further improve gear accuracy and fatigue life. We believe that the company's core capabilities will be extended to the field of humanoid robots in the future.

MR products are beginning to contribute to performance, and the second generation is expected to contribute greater performance flexibility. The company supplies MR pupil distance adjustment systems to major North American customers, PICO, etc., and has been confirming revenue since 2022. We anticipate that MR products will later introduce a focal length adjustment system. The precision gear transmission system used will have higher precision and higher technical barriers. MR second-generation products are expected to contribute to the company's greater performance flexibility. In the MR product business, we recommend focusing on catalysts such as the determination of second-generation product drawings and the progress of first-generation product addition orders.

Profit forecasting and valuation

We kept the 2024 profit forecast basically unchanged, and introduced the 2025 profit forecast of 379 million yuan; the current stock price corresponds to the 2024/2025 price-earnings ratio of 41.7 times/27.9 times. We maintain an outperforming industry rating and target price of 80.00 yuan, corresponding to 54.1 times the 2024 price-earnings ratio and 36.1 times the 2025 price-earnings ratio, with 29.6% upside compared to the current stock price.

risks

The expansion of the automotive electronics business fell short of expectations; MR products fell short of expectations.