The company announced its 2023 annual report and 2024 quarterly report, and the results were in line with expectations. According to the company announcement, 1) The company achieved operating income of 92.160 billion yuan in '23, an increase of 0.80% over the previous year. Net profit attributable to mother was 655 million yuan, a year-on-year decrease of 10.26%.

Non-net profit deducted from mother was 572 million yuan, a year-on-year decrease of 18.65%. 2) In 23Q4, the company achieved operating income of 22.634 billion yuan, a year-on-year decrease of 3.70%; realized net profit of 138 million yuan, an increase of 39.47% over the previous year; realized deducted non-net profit of 117 million yuan, an increase of 1.00% over the previous year. 3) The 24Q1 company achieved revenue of 21.654 billion yuan, -13.38% year-on-year, net profit to mother of 168 million yuan, -3.89% year-on-year, and deducted non-net profit of 154 million yuan, or -7.57% year-on-year. 4) The company decided to pass the profit distribution plan: A cash dividend of 4 yuan (tax included) will be distributed to all shareholders based on the total share capital of 1,239,281,806 at the end of 23. The total cash dividend is expected to be distributed to about 496 million yuan (tax included), at a closing price of 11.40 yuan/share on April 26, 2024, with a dividend rate of 3.51%.

Offline channels are progressing steadily, and consumer boundaries are being continuously broadened in conjunction with the digital construction of stores. In '23, the company's Apple business division expanded 87 new stores authorized by Apple, with a total number of stores operating and servicing over 3,151; Cool Digital built 29 new APR stores, bringing the total number of customers to 174; the number of customers served by Honor's business segment increased by more than 4%; Shifeng Technology added 511 new Samsung retail stores under management, with more than 4,215 total service and management stores. The company deeply integrates offline channels with online traffic to acquire customers through store digitalization and omni-channel traffic. In 23, the company's Apple business division launched more than 1,142 offline O2O platforms in Guanmendian, achieving full coverage of the operations of the eight major e-commerce platforms, with online sales +120%; Coodoo's sales on e-commerce platforms and private communities increased 44% and 141% year over year, respectively; Shifeng Technology became the sole authorized operator of the Samsung brand on JD.com and Meituan flash shopping platforms, and O2O sales increased by more than 250% year on year.

Actively explore new performance growth points, and make successive breakthroughs in overseas sales, communication value-added, and private brands. In terms of overseas sales, as the exclusive agent and operating service provider for Honor brands in Hong Kong, Thailand, and Vietnam, the company achieved continuous growth in overseas sales share and market position. Honor's market share in Hong Kong rose from around 2% in early 23 to 10.8% in August, and achieved effective breakthroughs in market share in Thailand and Vietnam. In terms of value-added communications, in '23, Youyou Internet pioneered cooperation projects with leading customers such as China Power Grid and China Power Investment, formed close cooperation with many leading enterprise service SaaS companies, and realized application experiments of AIGC digital people in the field of live streaming. Performance increased dramatically. Revenue and net profit increased 8.24% and 27.59%, respectively. In addition, Youyou Internet successfully listed the New Third Board Innovation Tier. It has already entered the Beijing Stock Exchange listing consultation period, and future business development is guaranteed. In terms of its own brands, the company's new-style tea brand “Cha Xiaokai” covers more than 150,000 sales outlets, with annual sales exceeding 100 million yuan, ranking among the top 10 domestic sugar-free ready-to-drink tea market share in 2023; its own smart care brand “ROZU/Rongzun” sold more than 10 million; and its subsidiary Yamaki New Energy became the top 3 zero-sports car dealer.

Increase investment in R&D to enhance competitiveness, and strictly control to help improve operational efficiency. According to the company's announcement, competition in the smartphone industry chain intensified in '23, and the overall gross margin of the industry declined. Affected by this, the company's gross margin fell 0.12 pct year-on-year. Faced with competitor companies increasing R&D investment and expanding future business space, R&D expenses increased sharply by 73.88% over the same period last year. The ability to control expenses remained stable. The cost rate was 2.09% over the 23-year period, +0.02pct. Among them, the sales/management/development/finance cost ratios were +0.00pct/+0.01pct/+0.02pct/-0.01pct, respectively. The cost rate for the 24Q1 period was 1.98%, +0.34pct year-on-year, with sales/management/ R&D/finance expenses ratios +0.32pct/+0.03pct/+0.00pct/-0.01pct year-on-year, respectively. The company strictly controls core indicators, focuses on high-quality business, and further improves operating efficiency. Net operating cash flow in '23 was +576.83% year-on-year to $3,643 million, and interest expenses were -26.76% year-on-year to $144 million.

Adjust profit forecasts to maintain a “buy” rating. The company is deeply involved in digital smart distribution and retail business. On the basis of the 3C digital core business, the company continues to expand new fields such as FMCG, communication and value-added services, and NEV sales services, build an omni-channel full-coverage digital network, promote its own brand strategy in various fields, and lay out new performance growth points. Considering the slow recovery of the consumer electronics terminal market, we lowered our profit forecast. We expect the company's EPS for 23-24 to be 0.60/0.65 yuan, the original value (0.74/0.88 yuan), and the EPS forecast for the additional 25 years will be 0.70 yuan, corresponding to PE 19/18/16 times. Huazhi Liquor Company (a boutique liquor distribution company, building a core advantage based on an omnichannel distribution network with a nationwide alcohol distribution network, similar to that of Aishide) was selected as a comparable company. The comparable company unanimously expected 23x PE in the 2024 market. According to the comparable company's valuation, it was given Aishide 23x PE, with room to increase by more than 20%, maintaining a “purchase rating”.

Risk warning: mobile phone sales fall short of expectations; new brand expansion falls short of expectations; industry competition intensifies.