Key points of investment

23Q4 performance corrected year on year, and profitability inflection point increased: the company released its 2023 annual report, achieving full year operating income of 3.26 billion yuan, down 15.3% year on year, achieving net profit of 0.27 billion yuan, down 83.0% year on year, gross profit margin 15.3% year on year, and 1.7 pct year on year; of these, 23Q4 achieved revenue of 920 million yuan in a single quarter increased 15.4% year on year, and achieved net profit of 16 million yuan year on year, up 140.4% year on year. 2.8 pct.

Among them, an impairment loss of 41.8 million yuan was added at the end of the year, mainly due to falling inventory prices and impairment of goodwill. Excluding this part of the impact, the profit level of 23Q4 increased significantly over the same period.

The recovery trend in the global PC industry is clear, and AIPC accelerates penetration to drive demand for structural parts: in the laptop structural parts business, despite experiencing an economic downturn caused by rising global inflation and interest rate hikes in mature markets since 2022, the recovery trend in the laptop industry has gradually become clear since 2023H2. According to the “AIPC Acceleration Plan” announced by Intel, it is expected that more than 100 million AIPC units will be launched by 2025. According to IDC's forecast, AIPC is expected to increase the proportion of new machines assembled in the Chinese PC market from 8.1% in 2023 to 54.7% in 2024, and will rise rapidly in the next few years, reaching 85% in 2027, becoming the mainstream of the PC market.

With the conclusion of the CES 2024 exhibition, AIPC related machines and chip products will be unveiled on a large scale. 2024 is likely to become the “first year of AIPC”. AIPC is expected to accelerate penetration into the PC market. Lenovo and other companies suggest that the penetration rate of AI laptops will reach 60-70% in the next four years. At the same time, Windows 12 will be launched in 2024. These will all bring huge switching requirements and bring more room for growth on the laptop structural side.

Develop the automotive magnesium-aluminum structural parts business, and large-scale semi-solid equipment strengthens technical barriers: magnesium-aluminum alloy structural parts are an important solution for automobile weight reduction, and have a significant effect on improving the battery life of trains and reducing battery costs. As one of the few domestic enterprises with advanced semi-solid injection molding processes, the company also has large-scale semi-solid equipment for vehicles. It has an advantage in terms of processing accuracy, speed, yield, etc. of magnesium-aluminum structural parts. Combined with the company's many years of accumulation in the field of magnesium and aluminum structural components for laptops, the company is expected to seize the first-mover advantage and take the lead in building barriers in the customer supply chain. The company's business in the field of automotive electronics is progressing steadily. Currently, it has entered the mass production stage. Ongoing orders have continued to grow steadily, and production capacity has been gradually released. The company has obtained certification from many well-known automotive electronics manufacturers and formed business relationships with many NEV manufacturers and their suppliers. The downstream products cover car companies such as Xiaomi, NIO, Xiaopeng, BYD, BMW, Geely, and Volkswagen.

Profit forecast and investment rating: We expect AI PC to accelerate the switching cycle, and the company's automotive structural parts business has broad room for growth in line with the lightweight trend and maintain the company's 24-25 profit forecast. The company's net profit for 24-26 is estimated to be 2.3/3.5/4.1 billion yuan, respectively. The current market value of PE is 16.3/10.4/8.9 times, maintaining a “buy” rating.

Risk warning: The recovery in PC demand fell short of expectations; the penetration of magnesium alloy structural parts of new energy vehicles fell short of expectations.