Incidents:

On March 29, 2024, the company released its 2023 annual report. In 2023, the company achieved operating income of 7.507 billion yuan, a year-on-year increase of 25.85%; realized net profit of 331 million yuan, a year-on-year decrease of 24.27%; realized net profit to mother after deducting non-recurring profit and loss of 295 million yuan, a year-on-year decrease of 21.85%.

Inventory digestion is accelerated, and revenue has achieved steady growth

By business, in 2023, the company's home appliances/power tools/automotive electronics/intelligent products achieved revenue of 45.79/8.11/5.52/966 million yuan, +24.67%/7.80%/82.52%/31.59% compared with the same period last year.

Among them, the development of new project orders from major overseas home appliance customers in the home appliance sector is progressing smoothly, achieving steady growth.

Power tools are mainly affected by major downstream customers going out of inventory. The automotive electronics business has received several platform-level projects.

Downstream applications in the intelligent product sector are expanding, and new products are emerging. The turnover of the company's inventory accelerated in 2023, and the book value of the company's inventory as a share of total assets decreased by 3.32% compared to the beginning of the period.

Product structure changes have led to a decline in gross margin

The company's gross margin in 2023 was 19.58%, -0.57pct year on year, mainly due to changes in product structure. The company's controller gross margin increased by 0.22pct year-on-year, mainly due to the company's process optimization, increased raw material replacement, and achieved gross margin restoration.

Stock payment fees and changes in accounting estimates had a significant impact on net interest rates. The company's net interest rate to mother in 2023 was 4.41%, -2.92pct year on year. In 2023, the company's sales, management and R&D expenses were 2.32%, 4.58%, and 6.73% respectively, +0.39pct, +0.78pct, and +1.34pct, respectively. Excluding the impact of equity incentives and accelerated amortization expenses for intangible assets, the company's controller business segment achieved net profit of 342 million yuan after deduction in 2023, an increase of 5.85% over the previous year.

The subsidiary Chengchang Technology achieved rapid sales growth

Chengchang Technology's sales volume increased 50.83% year-on-year in 2023. Revenue increased 3.44% year over year, and the revenue growth rate was lower than the sales growth rate, mainly due to the impact of different downstream product structures and price systems. In 2023, Chengchang Technology achieved net profit of 80 million yuan, a year-on-year decrease of 40%, due to factors such as a sharp increase in R&D investment, increased preparation for bad debts due, and a decrease in non-recurring profit and loss.

Profit Forecasts, Valuations, and Ratings

We expect the company's 2024-2026 revenue to be 96.44/123.07/15.723 billion yuan, respectively, with year-on-year growth rates of 28.46%/27.61%/27.76%, net profit to mother of 528/8.03/1,074 billion yuan, respectively, year-on-year growth rates of 59.3%/52.17%/33.67%, EPS 0.57/0.86/1.15 yuan per share, and 3-year CAGR of 48%. Referring to comparable company valuations, we gave the company 25 times PE in 2024, with a target price of 14.25 yuan, maintaining a “buy” rating.

Risk warning: Downstream demand recovery falls short of expectations, increased market competition, and the impact of exchange rate fluctuations.