Core views:
Benefiting from the electrification and intelligence of automobiles, the company's revenue was +20% year-on-year in '23. According to financial reports, the company achieved revenue of 5.80 billion yuan, +20% year on year; net profit to mother was 320 million yuan, -24% year over year. Revenue growth mainly benefited from continued rapid growth in NEV sales. According to China Automobile Association statistics, domestic automobile sales in '23 were +12% year over year, of which NEVs were +37.9% YoY. By business, new energy/body systems/safety systems/power systems/smart driving network/cloud services achieved revenue of 27.9/9.3/8.4/4.5/40/200 million yuan respectively in 23 years, which was +35%/+8%/+33%/+3%/+59%/-52%, respectively.
Price cuts have boosted car companies and continued high investment in R&D, putting pressure on profitability in the short term. According to financial reports, the company achieved a gross profit margin of 18.7% in '23, -2.9 pct year on year, and -3.1 pct year on year. The decline in gross margin was mainly due to intense competition from downstream car companies and the company's price cuts and concessions; the period cost ratio was 14.0%, +2.0pct year over year, of which the sales/management (including R&D) /finance expenses rates were 2.0%/10.3%/1.7%, respectively, and -0.2/+1.5/+0.8pct year on year. The increase in the management expense ratio was mainly due to the increase in the company's investment in intelligent R&D, leading to an increase in the R&D expense ratio 9.0%, +2.1pct; the increase in the financial expense ratio was mainly due to an increase in loan amounts and high US dollar interest rates.
Renewable energy and intelligence go hand in hand to continue to expand the development of categories. According to the annual report, in '23, the company launched a MADC3.5 domain controller for L2+ and L2++ smart driving scenarios to achieve a comprehensive upgrade of functional safety, information security, and cabin driving.
Profit forecasting and investment advice: The company is positioned as an asset-light, development-heavy automotive electronics solution provider. It benefits from new energy and intelligence in automobiles, and product upgrades and category expansion drive continuous business improvement. The company's 24-26 EPS is expected to be 0.32/0.42/0.51 per share. Considering the company's unique business model, historical valuation and comparable valuation, the 24-year 15 xPE is given, corresponding to HK$5.16 per share (exchange rate 1 HKD = RMB 0.92), maintaining a “buy” rating.
Risk warning: macroeconomics falling short of expectations; fluctuating raw material prices; risk of technological iteration.