Key investment points: The company released its 2023 annual report and achieved annual revenue of 21.57 billion yuan, +20.1% year-on-year; realized net profit to mother of 204 million yuan, reversing losses over the previous year. On a quarterly basis, the company achieved revenue of 5.63 billion yuan in 23Q4, +14.2%/+2.3% year-on-month; realized net profit of 50 million yuan, reversing losses year-on-year/-30.7% month-on-month. The performance was in line with expectations.

Revenue grew rapidly in '23, turning a loss into a profit year over year. Benefiting from the recovery in global automotive market demand and the company's revenue from strategic emerging businesses centered on the passenger car seat business, the company's revenue in '23 was 21,571 billion yuan, +20.1% year-on-year, achieving rapid growth. The company's operations were stable and improving. Net profit to mother was 204 million yuan in '23, reversing losses over the previous year. Looking at the specific business segment, the division's situation is progressing steadily, achieving revenue of 3,058 billion yuan, or +25.5%; the passenger car seat business began contributing 655 million yuan in revenue and accelerated implementation of several projects; air outlets achieved revenue of 281 million yuan, an increase of several times over the previous year; EBIT reversed losses, with more than 60 fixed locations; and new businesses such as hidden doorknobs and on-board refrigerators continued to receive new targets.

Grammer turned a loss into a profit, and the American region ushered in an inflection point of profit improvement. In '23, Grammer's revenue was 17.723 billion yuan, +13.71% year over year; operating EBIT was 434 million yuan, and operating EBIT margin was 2.5%; realized net profit of 0.2 billion yuan, turning a year-on-year loss into a profit. Looking at marginal changes by region: the 23Q4 operating EBIT margin in Europe was 5.1%, -2.7%/-0.1%, maintaining a level of 5% or more; the 23Q4 operating EBIT margin in the American region was -5.8%, -7.5%/1.2% year-on-month, and profitability was still low; the Asia-Pacific region's 23Q4 operating EBIT margin was 12.9%, +0.9%/+2.6% year over month, while revenue was +24.0%, domestic market continued to develop and profitability Stay high.

We believe that with Grammer's Global COO Li Guoqiang taking office and the gradual implementation of cost reduction and efficiency measures, the European region and China will continue to maintain good profitability and increase steadily; while the American region will implement the optimization and adjustment of its own business structure in an orderly manner, find the source of continuous loss, and solve the problem at the source, to consolidate the future loss or even profit of the North American business.

Ongoing orders for the passenger car seat business continue to accumulate, and construction of new production capacity continues to advance. Since May '23, the company's first project was mass-produced, and 65,000 units were delivered, achieving revenue of 655 million yuan. Currently, the company has targeted 9 passenger car seat projects, covering new energy, traditional high-end joint ventures, and traditional autonomous vehicle companies, with total sales of about 60 billion yuan during the order life cycle. In addition, the company is speeding up the construction of new production capacity to match the continuous expansion of the business scale. Currently, the Hefei base (Phase I) has been completed and put into operation, and the Changzhou, Ningbo, Changchun, Tianjin, Beijing, Fuzhou, Yiwu and Wuhu bases have been put into construction, and the R&D team has been increased by about 100 people. At the same time, the company's fixed capital increase of 1,183 billion yuan has been officially completed to provide financial support for production capacity expansion. Looking ahead, the company will have several mass production projects in 2024, which is expected to further expand the scale of the company's passenger car seat business and enter a stage of high-quality rapid development.

The profit forecast was lowered and the “buy” rating was maintained. Considering the acceleration of the company's passenger car seat expansion, the possible increase in upfront investment, and the uncertainty about the pace of improvement in Grammer's overseas profits, we lowered the company's 2024-2025 net profit to 4.31/1,037 million yuan (previous value was 547/1,077 million yuan) and added the 2026 forecast to 1,385 billion yuan, corresponding to the current PE of 38/16/12 times. The company's growth logic is clear. Grammer's integrated profitability improvement will provide short-term performance increases, and the expansion of passenger car seats and other businesses will provide room for long-term growth. In view of the company's high future performance growth, PEG was only 0.48 in 2024-2026. Compared with comparable companies (Xinquan Co., Ltd., Huayang Group, Shanghai Yanpu), PEG=0.71, there is still a lot of room for improvement, maintaining a “buy” rating.

Core risks: Overseas demand release falls short of expectations, Grammer's integration falls short of expectations, passenger car seat business expansion falls short of expectations.