Revenue for the year 23/24Q1 was +6%/+21%, net profit to mother -37%/+54% year-on-year, net profit after deducting non-return net profit -4%/+66% year-on-year, and Q1 performance exceeded market expectations. The company released its annual report for 2023 and its quarterly report for the year 24, achieving revenue of 1,415 million yuan, +6% year on year; net profit to mother of 139 million yuan, -37% year over year. After excluding this impact, net profit to mother was -3% year-on-year, in line with market expectations; net profit from non-return mother was 124 million yuan, or -4% year over year. 23Q4/24Q1 achieved revenue of 362/381 million yuan, -9%/+21%; net profit to mother of 0.46/55 million yuan, +317%/+54% year-on-year; net profit after deducting non-return to mother of 0.47/53 million yuan, +2952%/+66% year-on-year, and Q1 performance exceeded market expectations.
The transformation of the marketing system is beginning to show results, and profitability continues to improve. In terms of cost rate, the company's expense ratio for the 23-year/24Q1 period was 30.5%/24.4%, +2.9pct/ -5.1pct, of which sales, management, R&D, and finance expenses were +1.5pct/-2.1pct, -0.8pct/-1.6pct, +2.7pct/-1.3pct, -0.4pct/-0.1pct to 9.9%/7.1%, 5.5%/4.7%, 14.8%/12.3%, 0.3%/0.3%. The 24Q1 cost control effect is remarkable, mainly due to: 1) the marketing system transformation, which took more than 2 years, has been completed, the three-tier collaborative interlocking model has shown results, and the sales expense ratio has decreased significantly; 2) equity incentive costs have decreased year-on-year. In terms of profit margins, the gross margin for '23 and 24Q1 was 38.3%/36.9%, respectively, +0.7 pct/-1.3 pct. In 24Q1, we expect the gross margin of each product to remain stable year on year, but the increase in servo revenue share lowers the gross margin level. Net interest rates due to mother in '23 and 24Q1 were 9.8%/14.4%, respectively, -6.7pct/+3.2pct year over year. 24Q1 relied on cost control to achieve contrarian profit margin growth.
Motion control: The proportion of new categories and solutions has increased, and the emerging industries of photovoltaics, lithium batteries, semiconductors, and robotics are growing rapidly. 1) Stepper Systems 23/24Q1 revenue was 660 million/160 million, +2%/+2% year-on-year. With the recovery of downstream 3C + channels, the company's progressive business continued to grow steadily despite the decline in the industry. 2) Servo 23/24Q1 revenue was 5300,000/160 million, +26%/+43% YoY.
AC servos seize the “fishtail” opportunity of new energy and rely on “stepper+servo+PLC” solutions to introduce major customers, while low-voltage servos have stagnated in growth due to the downturn in the inkjet printing industry. 3) The 23/24Q1 revenue for control products was 180 million/60 million, -11%/+44% year-on-year. Among them, PLC successfully expanded in the advanced manufacturing industry, revenue doubled, and sports cards declined year on year. 4) In terms of gross margin, the stepper/servo/control category was +2.2/+1.2/+1.4pct year-on-year in 23, which increased with the reduction in raw material prices.
Humanoid robot: New strategic direction, positioning servo product solution provider. The company uses humanoid robots as one of its important strategic businesses and launched core products such as frameless torque motors, servo drives, hollow encoders, and hollow cup motors at the end of 23, while successfully mass-producing FM series frameless motors, with an annual production capacity of 300,000 units.
Profit forecast and investment rating: Benefiting from the recovery in core downstream demand exceeding expectations, we raised the company's 24-25 net profit to 1.88 million yuan and 240 million yuan (previous values were 1.39 million yuan and 204 million yuan). The estimated net profit for 26 years was 314 million yuan, +36%/+28%/31% year-on-year, corresponding to current PE prices of 29 times, 23 times, and 17 times, respectively, maintaining the “buy” rating.
Risk warning: macroeconomic downturn, competition intensification, raw material price increases beyond expectations, etc.