Introduction to this report:

The company's 2023 annual report is in line with expectations. It focuses on a concentric diversification strategy, continuously expanding the boundaries of capabilities, rapidly expanding its livelihood gear and robotics business, continuously increasing its overseas layout, and accelerating global expansion.

Key points of investment:

Maintaining an increase in holdings rating, the target price was lowered to $33.21. Maintain the 2024-2025 EPS forecast of 1.23/1.59 yuan, and add the 2026 EPS forecast of 1.93 yuan. Considering the slowdown in the growth rate of the new energy industry, the target price was lowered to 33.21 yuan (originally 40.15 yuan), corresponding to 27 times PE in 2024. Considering the company's leading position in the industry, overseas expansion is accelerated, and the valuation level is higher than the industry average.

The 2023 annual report is in line with expectations, and the quality of operations continues to improve. The company's revenue in 2023 was 8.07 billion yuan, up 18.1% from the same period, and net profit attributable to mother was 820 million yuan, an increase of 40.3%. 4Q23 revenue was 2.20 billion yuan, up 9.4%, and net profit attributable to mother was 230 million yuan, up 31.5%. Heavy truck AMT and NEV gear businesses drove revenue growth. The company's cash flow is abundant, and ROE continues to rise. In 2023, the company's net operating cash flow was 1.57 billion yuan, and the ROE was 10.3%.

Profitability performance is impressive, and operational efficiency is constantly improving. The company's gross profit margin in 2023 was 22.2%, with a net profit margin of 10.3%, and an increase of 1.8 pct; 4Q23 gross profit margin was 24.6%, up 2.1 pct, 2.9 pct, net profit margin 10.0%, 1.6 pct, and 0.6 pct. Through lean production, technology improvement, and production line automation, the company continuously improves per capita output and efficiency, consolidates the moat, and continues to improve profitability.

Focus on diversified development, and overseas factories help global expansion. The company focuses on a concentric diversified development strategy, focuses on high-precision gear transmission, and continuously expands product boundaries. The company's new business, Minsheng Gear, was rapidly released, with revenue of 380 million yuan in 2023, an increase of 87% over the same period. The company is building a production base in Hungary, entering and consolidating the European market, speeding up the development of overseas supply chains and sales channels, gradually improving overseas layout, and accelerating global expansion.

Risk warning: New orders fall short of expectations; capacity utilization falls short of expectations.