Introduction to this report:

The company's 2023 performance was under short-term pressure, domestic sales were relatively weak, and export sales continued to grow. The company's profitability is expected to recover marginally in the future, continue to expand overseas, and enter the automotive display field. Increase your holdings carefully.

Key points of investment:

Investment advice: The company's 2023 performance is under pressure in the short term. We maintain our 24-25 profit forecast and add a 26-year profit forecast. We expect the 2024-2026 EPS to be 3.28/4.59/5.93 yuan, the growth rate will be +91%/+40%/+29%, maintain the target price to 98.50 yuan, and lower it to a “cautious increase” rating (the reason for the downgrade is the reduction in target space compared to the previous time).

Short-term pressure on 2023 results: The company achieved operating income of 3,557 billion yuan in 2023, net profit of 121 million yuan, and net profit of -75.97% year on year; of these, 2023Q4 achieved operating income of 1,135 million yuan, -15.31% year on year, net profit to mother of 34 million yuan, -80.02% year on year, net profit of non-return to mother of 26 million yuan, -84.36% year on year.

Domestic sales are under pressure, and overseas sales continue to grow: the company's domestic sales/export revenue in 2023 was 2,617/913 million yuan, -23.07%/+15.60% compared with the same period last year. In terms of pace, we expect the company's 23H1/H2 domestic sales revenue growth rates to be -26%/-19%, respectively, and export revenue growth rates of +29%/+5%, respectively. The reason for the continued overseas growth is that the company has focused on offline channels in the German-speaking and French-speaking regions of Europe, further increasing the layout of overseas channels, and the results of future overseas trips are expected to continue to show.

Low-cost products reduce profits, and future improvements are expected: in 2023, the company's gross margin was 31.25%, -4.73 pct year on year, and the net margin was 3.37%, -8.5 pct year on year. The decline in profit margin was mainly due to a significant increase in the volume of new Play3 products (1999 yuan) with low gross profit and cost performance. The company launched a new generation of Play5 products on April 25. We expect this model to have a better cost reduction plan based on the previous one, and future profits are expected to improve. Furthermore, the company pioneered a second growth curve and laid out an in-vehicle projection circuit, which is expected to open up new growth space in the future.

Risk warning: there is uncertainty about the recovery of consumer demand, and market competition is intensifying