Event: The company released its 2023 annual report and 2024 quarterly report. The company achieved revenue of 4.617 billion yuan in 2023, -11.4% year on year; net profit to mother - 474 million yuan, -278.4% year on year. Among them, 2023Q4 achieved revenue of 1,149 billion yuan, +10.8% year on year; net profit to mother - 299 million yuan, -586.3% year over year.

In Q1 2024, we achieved revenue of 1,636 billion yuan, a year-on-year increase of +5.5%; realized net profit to mother of 130 million yuan, an increase of +48.5% year-on-year.

The inflection point of inventory replenishment has been reached, and revenue recovery can be expected. The company's revenue fell -11.40% in 2023, the first decline in 20 years since the company was founded, mainly due to high inflation in North America curbing consumer demand and downstream channel dewarehousing.

Among them, the amount of the company's products sold by Amazon to end customers fell by less than 10%, but the company's sales volume of Amazon shipments fell by more than 50%; the ODM business was also affected by inventory removal, which decreased by about 40% year-on-year. Looking ahead to 2024, the company's revenue is expected to grow rapidly as downstream retailers enter the inventory replenishment cycle. According to the company's annual report outlook, Amazon channel procurement intentions have rebounded, and the company's shipping revenue to the Amazon channel is expected to increase by about 80%; major ODM customers, Toro, Echo, etc. all issue order requirements, and the ODM business is expected to pick up throughout the year; in addition, Optimus, a commercial zero-steering lawn mower launched by the company, has reached an OEM cooperation with Sthil, which will also drive the company's revenue growth as the number of products delivered increases.

Profitability has clearly recovered, and it is expected that profit elasticity will be released in 24 years. The company's gross margin in 2023 was -3.0 pct to 22.72% year-on-year, mainly affected by increased promotional deductions and the absorption of high-priced inventory at the end of 2022.

The 2024Q1 gross margin was -3.7 pct to 30.29% year over year, with a significant month-on-month improvement. It is expected to be mainly related to the company's high-price inventory removal pace. As the company's high-price inventory is gradually eliminated, gross margin can be expected to continue to recover.

In 2023, the company's sales/management/R&D/finance expense ratios were 17.6%/11.8%/4.8%/-0.5%, respectively, compared with +5.9/+2.8/+0.7/+2.5pct. The obvious increase in the cost ratio was mainly due to a decline in revenue and higher cost investment.

The 2024Q1 sales/management/R&D/finance expense rates were 11.1%/7.7%/3.2%/-0.1%, respectively,/+1.0/-1.8/-0.8/-2.1pct year-on-year, respectively. Furthermore, 2024Q1 asset impairment losses decreased by 16.85 million compared to the same period last year, and income tax expenses decreased by 10.89 million. Under the combined influence, 24Q1 net profit margin was 7.9%, +2.3 pct year over year.

Looking ahead to 2024, profit margins are expected to recover to a large extent throughout the year under revenue-side restoration+cost control.

Investment advice: The company's net profit for 2024-2026 is estimated to be 293, 4.89, and 565 million yuan, respectively, +161.8%, +66.9%, and 15.5% year-on-year. The current stock price corresponds to PE21x, 12x, and 11X. We believe that the lithium battery OPE sector, which has high investment value in the medium to long term, has begun to reverse at the bottom, and the company is also expected to achieve a strong performance recovery as a leading lithium battery OPE manufacturer. Furthermore, the company is leading the commercial market layout with a lot of room for lithium battery, and is expected to fully benefit from the industry's lithium electrification dividends in the future and maintain a “recommended” rating.

Risk warning: penetration rate increase falls short of expectations; downstream demand falls short of expectations; industry competition pattern deteriorates