Introduction to this report:

The performance exceeded expectations, and cost reduction and efficiency increased significantly; the company's white power and auto parts businesses are expected to fully benefit from the trade-in of consumer goods; based on the white power business, it is planned to expand Auto Zero's second growth pole.

Key points of investment:

Investment advice: Keep EPS unchanged at 1.05/1.33/1.53 yuan for 24-26 years. Keep the target price unchanged at 16.8 yuan. Maintain an “Overweight” rating.

The performance exceeded expectations, reducing costs and increasing efficiency significantly. The company achieved revenue of 924 million yuan/ +23.73% in 2024Q1, net profit of 106 million yuan/ +38.03%; deducted from non-return mother 90 million yuan/ +34.43%. 2024Q1 gross margin was 20.12% /YoY -1.64pct/month-on-month -1.8pct, net profit margin 10.76% /YoY +1.5pct/month-on-month +0.11pct. The decline in the company's gross margin was mainly affected by changes in electricity bill settlement policies, which led to an increase in current electricity costs. Against the backdrop of declining gross margin, the company's net profit margin continued to increase year-on-month, thanks to:

1) Cost reduction and efficiency are in place: 24Q1, the company's management expenses were RMB 29 million, compared to RMB 43 million for the same period in 23Q1. 2) Other revenue for 24Q1 increased by $0.1 billion compared to 23Q1.

Consumer goods trade-in is progressing steadily, and the company's white power and auto parts businesses are expected to fully benefit. On April 12, 14 departments including the Ministry of Commerce issued the “Action Plan to Promote Trade-In of Consumer Goods”, which aims to promote the trade-in of automobiles and home appliances through various means such as financial subsidies. Key provinces and leading home appliance companies such as Jiangsu, Zhejiang, Shanghai, and Guangdong have responded to the plan and introduced relevant subsidies to stimulate demand for terminals. With the gradual implementation of the subsidy policy, it is expected to stimulate sales of home appliances and automobiles, thereby providing a strong boost to the company's white electricity and auto parts business.

Based on the Baidian business, it is planned to expand Auto Zero's second growth pole. In the white power sector, the company expanded washing machines and increased the proportion of machining to consolidate its existing advantages. In the construction machinery sector, the company is stepping up market development efforts to improve capacity utilization. In the auto parts sector, the company is currently small in size and has plenty of room for growth. In the future, Auto Zero may become the second growth pole through internal production expansion or epitaxial mergers and acquisitions.

Risk warning: Policy implementation falls short of expectations, and air conditioning schedules and expansion in new fields fall short of expectations.