Incident: 1) The company released its 2023 annual report. In 2023, it achieved operating income of 2,660 billion yuan, a year-on-year decrease of 1.35%; realized net profit of 396 million yuan, a year-on-year decrease of 4.44%. 2023Q4 achieved operating income of 650 million yuan, down 2.04% year on year and 3.34% month on month; realized net profit to mother of 129 million yuan, up 5.41% year on year and 36.06% month on month. 2) The company released its 2024 quarterly report. 2024Q1 achieved revenue of 585 million yuan, a year-on-year decrease of 6.48%, a month-on-month decrease of 9.91%, and realized net profit of 65 million yuan, a year-on-year decrease of 19.59% and a year-on-year decrease of 49.96%.

There was a slight increase in gear reducers over the same period last year, while modular and GNORD reducers declined. 1) Gear reducers achieved revenue of 2,052 billion yuan, an increase of 2.20% over the previous year. Among them, the market share of modular reducers with high added value increased steadily, and the number of units shipped and sales increased year-on-year. Cycloidal pinwheel reducers achieved revenue of 385 million yuan, a year-on-year decrease of 10.85%. As the downstream application end was replaced by modular reducers, and demand from small and medium-sized customers declined, the number of units shipped declined significantly over the same period last year. 2) GNORD speed reducers achieved revenue of 121 million yuan, a year-on-year decrease of 15.30%, mainly due to the decline in the prosperity of the lithium battery industry, which accounts for relatively high levels, and the expansion of new fields such as injection molding machines, HAECO, and photovoltaic film. 3) Engineering Planets have achieved breakthroughs in many fields. ① Offshore Engineering: Received tens of millions of orders; ② Construction machinery: seizing more supply share from major customers; ③ Photovoltaics: achieving serial development of photovoltaic rotary speed reducers from 5 inch to 9 inch models; ④ Wind power: Samples of propeller yaw reducers have been tested by well-known OEMs; ⑤ European cranes: new products of speed reducers have been shipped in batches. 4) Harmonic speed reducer developed a variety of new products. Guomao Precision moved to its headquarters factory in Changzhou to increase production capacity and develop new harmonic products in the fields of CNC machining centers (four-axis and five-axis machines), high-torque scenarios, and humanoid robots. 5) The sales volume of the company's industrial gearbox products increased by about 20% year-on-year, and the market share further increased.

Profitability decreased slightly. 1) The company's consolidated gross margin in 2023 was 26.01%, down 0.73pp year on year. Among them, the gross profit margin of gear reducers was 25.26%, down 1.57pp; the gross profit margin of cycloid reducers was 24.46%, up 2.64pp year on year; GNORD speed reducer gross margin was 21.97%, down 1.93pp year on year.

2024Q1 gross profit margin was 23.00%, down 4.17pp year over year. 2) The cost rate for the 2023 period was 10.14%, down 0.20pp year on year, with sales/management/ R&D/finance expenses ratios of -0.04pp/ -0.70pp/+0.33pp/+0.21pp, respectively. 3) The company's net interest rate in 2023 was 14.78%, down 0.49pp year on year. 2024Q1's net profit margin was 11.02%, down 1.73pp year over year.

Profit forecasting and investment advice. The company's net profit for 2024-2026 is estimated to be 482, 5.60, and 650 million yuan respectively. The net profit returned to mother will maintain a compound growth rate of 18% over the next three years, maintaining a “buy” rating.

Risk warning: the risk that downstream demand falls short of expectations; the risk of raw material price fluctuations; the risk that the high-end reducer sector will not expand as expected; the risk of harmonic reducer expansion falling short of expectations, etc.