2023&1Q24 results meet our expectations

The company announced 2023 &1Q24 results: 2023 revenue of 1,666 million yuan, +14.07% YoY; net profit to mother of 225 million yuan, +18.35% YoY. Corresponding to 4Q23 revenue of 502 million yuan, +14.34%/+14.90% YoY; net profit to mother was 66 million yuan, -4.59%/-2.34% YoY. 1Q24 achieved revenue of 407 million yuan, +31.74%/-18.86% YoY; net profit to mother was 55 million yuan, +46.07%/-16.68% YoY. 2023&1Q24 results are in line with our expectations.

Development trends

The automotive electronics business drives revenue growth, and projects such as new energy sources contribute to increased performance. In 2023, the company's automotive electronics/consumer electronics business achieved a steady increase in revenue of +15.20%/+1.59% to 1,183 million yuan/308 million yuan. We believe that the main factors are: 1) volume, automotive electronics/consumer electronics sales volume in 2023 +3.58%/+3.19% to 233 million/6.445 million, and mass production of new projects in several categories of products such as new energy trielectronics/body electronics control systems, and +51.56%/ 30.76% 2) On the price side, the unit price of automotive electronics/consumer electronics products was +11.22%/-1.56% to 5.08 yuan/0.05 yuan. The value of bicycles currently supplied by the company with new energy vehicles is high. We believe that with the continuous establishment and production of new energy products and smart cockpit products for intelligent driving, the company's automotive electronics business is expected to continue to drive performance improvement.

Profitability improved marginally, and excellent performance in cost control and cash flow. On the profit side, gross sales margin in 2023 was +2.3ppt to 32.7% year over year, and 1Q24 gross sales margin was +0.9pp/+3.0ppt to 33.9% year-on-month. Changes in gross margin are mainly affected by upstream raw materials such as copper and plastic materials. On the cost side, cost control improved, and the 2023 sales/management/R&D expense ratio was -0.2pp/ -0.6pp/ +0.2ppt to 2.1%/7.8%/5.8% year-on-year. Cash flow performance was impressive. Operating cash flow in 2023 was +68.77% year-on-year to 403 million yuan. We believe that the company continues to invest in R&D to build a competitive advantage. As lean management advantages gradually emerge and scale effects continue to be unleashed, profitability is expected to be further optimized.

Take advantage of the electrification and intelligence of Dongfeng to continuously improve the production capacity layout. In terms of projects, the company established 69 new automotive electronics business projects in 2023, mainly involving new energy three-electric systems, as well as intelligent driving and intelligent cockpit control system components. In terms of production capacity, Jiaxing's NEV parts investment project officially started in July 2023, which mainly produces products in the fields of NEV electric vehicles and intelligent driving and intelligent cockpit systems. Looking ahead, we believe that as the company continues to invest in the field of new energy and intelligence and the continuous advancement of production capacity layout and process optimization, the company's performance is expected to continue to grow healthily.

Profit forecasting and valuation

We maintain our 2024/2025 profit forecast, and the current stock price corresponds to 22.6/20.9 times P/E for 2024/2025. Maintaining an outperforming industry rating and target price of 19.3 yuan, corresponding to 2024/2025 26.1/24.1 times P/E, with 15.4% upside compared to the current stock price.

risks

The increase in raw material prices exceeded expectations, and the expansion of new projects fell short of expectations.