Event Overview: The company released its 2023 annual report and 2024 quarterly report. In 2023, the company achieved operating income of 909 million yuan, an increase of 4.11% over the previous year; net profit attributable to mother - 386 million yuan; net profit after deducting non-return to mother - 402 million yuan. In the first quarter of 2024, the company achieved operating income of 159 million yuan, an increase of 50.64% over the previous year; net profit attributable to mother - 79 million yuan; net profit after deducting non-return to mother - 82 million yuan.

The trade-in of transportation equipment has started, and the construction of intelligent urban connectivity has entered the pilot construction stage. On March 13, 2024, the State Council issued the “Action Plan to Promote Large-scale Equipment Renewal and Consumer Goods Trade-In”, which proposes that by 2027, the scale of equipment investment in transportation and other fields will increase by more than 25% compared to 2023; the focus is on supporting the renewal of transportation equipment. On January 17, 2024, five departments including the Ministry of Industry and Information Technology jointly issued the “Notice on Launching Pilot Work on the Application of “Vehicle-Road Cloud Integration” for Intelligent Connected Vehicles to organize and launch a pilot “Vehicle-Road Cloud Integration” application to further promote the commercial application of intelligent connected vehicles.

Over the years, we have been deeply involved in the construction of an intelligent connectivity ecosystem, driving the construction of pilot cities for intelligent connectivity applications through “vehicle-road collaboration”. 1) Data set advantages: The company collected large amounts of data at a large number of intersections and road sections in smart highways and smart city construction, and formed microscopic traffic model simulations and driving scenarios and behavior modeling by introducing trajectory data. 2) Strategic investment in Xuehu and Jida: Shanghai Xuehu mainly provides the company with computing power support for edge computing in terms of computing power; Shanghai Jida relies on self-developed traffic simulation software to provide the company with simulation capabilities in terms of vehicle road collaboration and autonomous driving application scenarios. 3) Intelligent connected application pilot city construction: Based on the city information model (CIM), the digital elements of the city are dynamically benchmarked in time and space to provide a smart base for car city integration to support the operation of intelligent connected vehicles and the management of smart cities.

Short-term adjustments do not change long-term growth potential, and focus on R&D investment to build core competitiveness. In 2023, the company continued to increase its investment in the market and R&D of new products such as lidar and intelligent connectivity, and R&D rates increased by 8.6 percentage points year on year; prices of some of the company's products fell, affecting the overall gross profit margin; affected by repayments, the amount of bad debt provisions for accounts receivable and depreciation provisions for assets such as inventory increased year-on-year due to the above reasons.

In 2024, the company will be based on the vehicle-road collaboration industry and seize the development opportunities of large-scale intelligent connected demonstration cities; the 192-line lidar under development is already in the sample stage, and the company will continue to increase R&D investment in silicon-based all-solid-state lidar OPA, and promote lidar products in the fields of mobile robots and autonomous driving. In the first quarter of 2024, the company's revenue increased by 50.64% year on year, reflecting the rapid development trend of the company's business.

Investment suggestions: Transportation equipment upgrades are expected to begin, “vehicle-road cloud integration” will also carry out urban pilot work, and the construction of pilot cities with intelligent connectivity applications will continue to accelerate. The company is actively expanding the intelligent connectivity business and is expected to create a new “vehicle-road collaboration” growth pole. Net profit due to mother for 2024-2026 is expected to be 0.33/120/218 million yuan, respectively, and the corresponding PE is 175X, 48X, and 26X, respectively, maintaining the “recommended” rating.

Risk warning: The policy implementation process falls short of expectations; business development such as intelligent networking is not expected; the risk of increased competition in the industry.