Incident: The company released its 2024 quarterly report, and achieved net profit of 104 million yuan in 24Q1, +13.4% year-on-year and -36% month-on-month.

24Q1 The performance of the division was affected by fluctuations in the initial operation of the new plant and losses from irregular fair value changes, and the shareholding performance was in line with expectations.

[Headquarters] 24Q1 achieved revenue of 1,059 million yuan, +25% year-on-month, 31% month-on-month, net profit of 48 million yuan, -21% year-on-year, and -56% month-on-month, corresponding to net interest rates of 4.6% to mother, -2.7 pp year-on-year, and -2.6 pp month-on-month. Among the specific important changes, we believe are:

1) The gross margin was affected by temporary losses at the beginning of the new plant: 24Q1 gross profit margin of 17.0%, year-on-year -4.4pp, and month-on-month -3.8pp. The month-on-month decline was mainly affected by fluctuations in the initial phase of operation of the new plant.

In 2024, the company put into operation 4 new bases: Dalian, Zhaoqing, Hefei, and Anqing. We believe that the customer certainty of the Dalian/Anqing factory is relatively high, that Dalian is expected to remain profitable, and that Anqing can quickly reverse losses after 24Q2 is put into operation. As new projects are introduced one after another, production is climbing, and quarterly losses are expected to gradually improve.

2) Increased investment in R&D on the cost side: the 24Q1 period was 12.9%, +0.1pp, and the month-on-month increase was mainly due to the R&D cost rate of 4.9%, +0.7pp, +1.8pp, R&D expenses of 52 million yuan, +016 million yuan, and +0.04 billion yuan month-on-month. The main reason was the increase in R&D personnel and wage levels, as well as additional expenses related to early design, trial production, test and testing for the development of new processes and materials.

3) Other impacts: There was a fair value change loss of RMB 12 million. Since this impact was an unrecurring profit and loss, the 24Q1 performance achieved by the division after adding back was basically the same as the same period last year.

[Shareholding] 24Q1 contributed 56 million yuan to performance, +83% year-on-year, and +5.6% month-on-month, returning to a relatively normal level of performance, in line with expectations.

In 2024, the company will begin a new stage of growth and continue to grow steadily. In 2024, we believe that the core increase will come from Chery, new energy customers, etc. At the same time, in March and December 2023, the chairman led the team to Europe to visit Mercedes-Benz, BMW, and Volkswagen in Germany. Customers also visited many of the company's subsidiaries, and received customer recognition one after another, entered the German OEM system, and directly participated in RFQ quotations. Overseas markets are also expected to become a new growth point.

Investment advice: After actively accumulating new projects and developing new customers in the past year, the company will gradually increase new projects in Hefei (NIO, BYD, Anhui Volkswagen, etc.), Zhaoqing (Xiaopeng, etc.), Anqing, and Dalian (Chery) starting this year, and the company will enter a new round of rapid growth from a higher starting point. We maintain the company's 2024-2026 net profit forecast of 654 million, 815 million yuan, and 1,057 million yuan, with growth rates of +20%, +25%, and +30%, maintaining a “buy” rating.

Risk warning: Higher raw material prices, impact of declining sales volume of traditional joint venture brands, lower than expected development of new customers in price competition, lower than expected sales of new energy vehicles, lower than expected pace of new product launch, lower than expected pace of development of the smart cockpit business, etc.