Event: The company released its 2023 annual report and 2024 quarterly report

In 2023, 2024Q1's net profit to mother turned a loss to profit year on year, respectively, and increased by 428%. In 2023, the company achieved revenue of 1.43 billion yuan, an increase of 0.1% year on year; realized net profit to mother of 14 million yuan, turning a loss into a profit year on year. 2024Q1 achieved revenue of 370 million yuan, a year-on-year increase of 32%; achieved net profit of 0.1 billion yuan, an increase of 428% over the previous year, mainly due to fixed-point sales of passenger car seats and aviation seat business restoration.

The low point in the company's performance is over, and the upward trend is expected to accelerate in 2024

1) In 2019 and 2022, the company calculated goodwill impairment and some bad debts arising from the acquisition of Acro, and the historical burden was basically cleared. The year-on-year growth rates of 23Q1-24Q1's revenue were -35%, 10%, -2%, 43%, and 32%, respectively, and the year-on-year growth rates of net profit to mother were -86%, 9%, -15%, 99%, and 428%, respectively. The improvement trend is obvious.

2) The company's gross profit margin and net profit margin in 2023 were 20.73% and 0.99%, up 6.58 and 20.17pct year-on-year.

2024Q1's gross profit margin and net margin were 22.14% and 2.73%, up -1.81 and 2.05pct year-on-year.

3) In 2023, the company's commercial vehicle seat revenue increased 52% year on year, making up for the decline in construction machinery seats and aviation seats at a low point in the industry cycle; passenger car seat revenue fell slightly by 2% year on year, and gross margin reached 11.83% under product structure optimization, up 6.84 pct year on year. With the targeted production of passenger car seats and the gradual return of investment in aviation seats, the company's 2024 performance is expected to accelerate upward.

Passenger car seats: Vertical integration of the supply chain helps domestic replacement, and is expected to reach the peak of deliveries in 2024 1) 70% of the domestic market is occupied by brands such as Yanfeng, Lear, Andorra, and Faurecia. The company has leading integration and cost control capabilities, and continues to promote domestic substitution. 1.01 million seats were delivered in 2023, achieving revenue of 470 million yuan.

2) Of the 16 designated projects announced by the company, 9 are expected to enter mass production in 2024. After large-scale production, volume profit will rise sharply. In the future, it is expected to become a supplier with annual production and sales of more than 2 million units and a market share of more than 10%.

3) Market space: We expect the domestic passenger car seat market to grow from 79.3 billion yuan in 2020 to 95.1 billion yuan in 2025, with a compound annual growth rate of 3.7%.

Aviation seats: Boeing Airbus global supplier, qualification+cost barriers create a potential leader in eVTOL seats 1) Scarcity of qualifications: The company obtained product airworthiness certificates from the European Aviation Safety Authority (EASA) and the American Aviation Administration (FAA) through the acquisition of British Acro, and already has mature supporting experience with Boeing and Airbus.

2) Airworthiness certification is more strict for eVTOL passengers than cargo, and the overload resistance requirement for aviation seats can reach 30g. Combining British R&D, qualification advantages and manufacturing advantages in China, the company completed the localization of core components such as carbon fiber and aluminum alloy for aviation seats, and continued cost reduction. Lightweight products are suitable for the weight-sensitive eVTOL industry.

3) We believe that the eVTOL seat industry looks at qualifications in the early stages and costs later. The company has the scarcity of domestic airline seat qualifications and cost control advantages brought by the passenger car business, and is expected to continue to benefit in the future.

Tiancheng Automatic Control: The compound net profit growth rate for 2023-2026 is expected to be 175%. The company's net profit for 2024-2026 is estimated to be 0.9, 2.1, and 290 million yuan, respectively, up 553%, 124%, and 42% year-on-year, corresponding to PE of 42, 19, and 13 times, maintaining the “buy” rating.

Risk warning: 1) Competition in the car seat industry increases risk; 2) eVTOL application promotion falls short of expectations.