Incident: Guoguang Electric released its 2023 annual report and 2024 quarterly report. In 2023, the company achieved operating income of 5.9 billion yuan, yoy -1.01%, realized net profit of 361 million yuan, yoy +102.28%, and realized net profit of 163 million yuan without return to mother, yoy +9.67%. In the first quarter of 2024, the company achieved total operating revenue of 1,269 million yuan, yoy +16.78%, net profit to mother of 29.17 million yuan, yoy +307.93% Comment: Demand in the terminal consumer market fell short of expectations, revenue declined slightly in 2023, and gross margin increased significantly. In 2023, the company achieved operating revenue of 5.9 billion yuan. By product type, speakers and speakers/batteries/electronic parts/other businesses achieved revenue of 49/4.3/5.3/0.7 billion yuan, yoy -6.54%/+14.69%/-17.78%, respectively. Affected by the terminal consumer market falling short of expectations, the revenue of speakers and speaker products declined slightly. The battery business benefited from factors such as the expansion of customer projects and overseas sales market expansion. By region, sales revenue to mainland China/Europe/US/other regions was 20.9/10.2/13.3/1.49 billion yuan, yoy -14.68%/-11.57%/+20.72%/+15.84%, respectively. Among these, customers sold to mainland China included Chinese customers and domestic customers who delivered in mainland China, and mainly export customers. The consolidated gross margin was 15.06%, yoy+2.76pct. The year-on-year increase in comprehensive gross margin mainly benefited from the company's active measures to reduce costs and increase efficiency, further strengthened management, and affected by fluctuations in the USD/RMB exchange rate. By product, the gross margins of speakers and speakers/batteries/electronic components were 14.33%/25.68%/10.09%, yoy+2.91pct/+8.42pct/-2.58pct, respectively.

Revenue grew steadily in the first quarter, and net profit to mother increased significantly. In the first quarter of 2024, the company achieved total revenue of 1,269 billion yuan, yoy +16.78%, net profit to mother of 29.17 million yuan, yoy +307.93% generative AI driven the interactive upgrade of smart speakers, and the recovery of the offline entertainment industry led to growth in professional speaker sales. The company is expected to fully benefit from being deeply involved in the audio, electroacoustic industry for many years. With the upgrading of intelligent interaction methods in domestic and foreign generative AI systems represented by ChatGPT and Wenxin's words, the depth and breadth of voice interaction feedback results will be greatly expanded. This will enhance the consumer user experience, make smart speakers become real AI assistants, and inject new impetus into the development of smart speakers. In the field of professional audio, the global offline entertainment industry has ushered in a recovery. The restoration of cultural and entertainment scenes such as large-scale conferences, sporting events, concerts, and KTV at home and abroad. Coupled with the continuous increase in consumer awareness and demand for high-quality immersive audiovisual experiences, the iterative upgrading of live audiovisual equipment will drive a new round of sales growth for professional audio.

After years of accumulation of consumer electronic audio technology, a major breakthrough has been made in the car audio business. The company has many years of technical experience in the field of consumer electronic audio products, with a complete simulation system and material database, covering structural, aero-acoustics, thermodynamics, radio frequency and other technical fields; related simulation and measurement methods can provide design and simulation value-added services for automotive customers; mastered sound effects algorithms and DSP technology in various car audio fields and non-car audio fields. The car audio laboratory has conducted tuning tests on various models to provide customers with vehicle acoustic design references; the company's production system has obtained the vehicle grade ISO/TS16949 quality system certification, and A professional car audio team was formed in the first half of 2022. 2022Q3 was selected by a leading domestic NEV customer to supply a complete set of multiple speakers and speakers for one of its models. It is initially estimated that it will supply 8.5 million to 10 million speakers and speakers during the life cycle.

Target leading VR/AR companies, and steadily advance the transformation and upgrading of the business to complete machines. In recent years, the VR/AR industry has grown rapidly in the hardware and content markets. According to IDC reports, global VR/AR shipments increased 92.1% year-on-year in 2021; according to TrendForce, global VR/AR equipment shipments are expected to be 53.1% in nearly 5 years. At present, the company has become an acoustic module supplier for leading VR companies at home and abroad. The product share continues to grow, and top customers and orders continue to increase: the company is deeply tied to overseas M customers and cooperates on acoustic products on various VR/AR products; the company develops acoustic modules for domestic VR leading enterprise P customers and has achieved mass production. In addition, the company has built a VR machine workshop and has VR machine production capacity, and has obtained an official order from Q customers. It is expected to transform and upgrade into the VR complete system market with more space in the future.

Investment recommendation: Maintain the 2024 performance forecast and expect to achieve net profit of 3.3/39/450 million in 2024/2025/2026, maintaining the “buy” rating.

Risk warning: consumer demand recovery falls short of expectations, risk of exchange rate fluctuations, new business development falls short of expectations, risk of trade friction