2023 and 1Q24 meet market expectations

The company announced its 2023 and 1Q24 results. In 2023/1Q24, revenue was 1.31 billion yuan, +6.7%/-4.6% year-on-year, and net profit to mother reached 37/100 million yuan, respectively, up 2.8%/0.9%. The results were in line with market expectations. On a quarterly basis, 1Q/2Q/3Q/4Q revenue was +42.5%/+11.7%/-15.8%/+0.2%, respectively, and net profit to mother was +62.6%/+8.1%/+2.8%, respectively.

Development trends

1. Due to the complex process of high-end new products and new production capacity, Q1 revenue is under pressure in the short term, and strong in-hand orders are expected to support subsequent accelerated growth. The company's 4Q23/1Q24 revenue was flat, respectively, and the Q1 revenue side was under short-term pressure at a higher base. We believe that the current production efficiency of new products is expected to rise to a relatively ideal level, mainly due to the difficult production process of new products this year and the gradual release of new production capacity. Looking ahead, according to Live Nation, as of mid-February, the annual reservation rate for large venues has reached 65%, up 15ppt from the previous year, and the domestic offline entertainment schedule is also strong. For example, in “Haoyang Stock: Strong Demand, Production Capacity Release, and New Product Release Are Expected to Help Rapid Growth in 2024”, as Enping's new production capacity continues to be released, production efficiency improves, and differentiated new products support strong orders. The revenue side is expected to accelerate in the future.

2. The increase in the share of high-end new product shipments led to a continued rise in Q1 gross margin, and exchange earnings increased net profit.

In 2023/1Q24, the company achieved a gross profit margin of 50%/52.7%. Among them, Q1 gross margin increased by 1/6ppt year-on-year, respectively. We believe that the main reason is that the company has rich reserves of differentiated technology and is driven by the positive shipment of high-margin high-end new products. On the expense side, 1Q24 sales/management/ R&D/ finance expense ratios were +1.6ppt/+1.6ppt/-4.5ppt, respectively, and exchange earnings increased performance. Under the combined influence, the company's net profit margin for 2023/1Q24 reached 28.1%/31.9%, -1.1pp/+1.7ppt year-on-year.

3. I am optimistic that the company will accelerate its growth as a global stage lighting leader, and is expected to rapidly rise endogenous+epitaxial in the medium to long term. We believe that as a global stage lighting leader, the company has leading advantages in product development, brand power, channel network, etc. In the short term, industry demand and company orders are expected to continue to be high in 24 years. The company has sufficient reserves of new products and continuous expansion of new production capacity, which is expected to support the accelerated growth of subsequent performance; in the medium to long term, the company's vertical direction is expected to expand its leading share of the high-end stage lighting market while accelerating the development of the middle and high-end incremental markets; Horizontal+epitaxial is expected to promote new categories with high added value and strong channel synergy effects around the stage scene.

Profit forecasting and valuation

Considering that newly established production capacity is still climbing in the short term, we lowered our 24/25 profit forecast by 13%/11% to 47/550 million yuan. The current stock price corresponds to 19/16 times P/E for 24/25. Considering strong industry demand and broad room for new product growth, keep the industry rating and target price unchanged at 130 yuan, corresponding to 23/20 times P/E in 24/25, with 22% room for growth.

risks

Demand for terminals fell short of expectations; development of new products fell short of expectations.