Event: New Clean Energy released its 2024 quarterly report. 2024Q1 achieved operating income of 370 million yuan, yoy -0.5%, qoq -0.2%; net profit to mother of 100 million yuan, yoy 54.1%, qoq -7.5%; comprehensive gross profit margin of 34.76%, an increase of 3.34pct year-on-year, and 2.99pct month-on-month.

The significant increase in gross margin led to impressive profit growth. The company's gross margin increased rapidly year-on-year and month-on-month in the first quarter. We believe the main reason is: 1. The continuous optimization of the company's product structure, market structure and customer structure promoted the introduction of more product numbers through its own customer stickiness, while actively advancing in high-value-added fields such as new energy vehicles and AI servers. 2. Continuous optimization on the cost side. In the future, along with the continuous enrichment of the company's own products and the continuous expansion of downstream application fields, the company is expected to maintain a growth trend in performance.

AI field: Achieve mass sales to customers with leading computing power, and the scale can be expected in the future. We believe that with the rise of large AI models, power semiconductors may benefit profoundly from the continuous acceleration of the AI process, which has given rise to huge demand for electricity. According to the company announcement, in 2023, the company promptly responded to market demand, continued product promotion, and continued to gain more market share in the traditional server field. At the same time, the company uses its own advantages to develop products around AI computing power-related needs and actively promote them to customers. Currently, the company's related products have been sold in bulk to leading customers in the AI computing power field, and the company expects the related scale to grow further.

Automotive sector: The scale and proportion may increase rapidly. In terms of automakers, the company has directly supplied BYD's full range of models since 2023, and various products can be supplied in large quantities. In terms of leading tier 1, the company continues to ship on a large scale to leading manufacturers such as United Electronics and Bethel. Among them, the company has obtained more than 20 fixed automotive electronics targets from United Electronics. The project will continue from 2024 to 2029. The products involve multiple core systems including main drive electronic control, OBC, and power battery management. The company expects the overall sales scale and share of automotive electronics products to increase rapidly in the future.

Profit forecast and investment advice: We expect the company's 2024E/2025E/2026E to achieve operating income of 19.2/24.0/3.0 billion yuan, yoy 30.0%/25.0%/25.0%; net profit to mother of 4.5/5.4/7.0 billion yuan, yoy 39.2%/20.2%/28.9%, corresponding to current PE of 25.3/21.1/16.3x, respectively, maintaining a “highly recommended” rating.

Risk warning: Downstream demand falls short of expectations, new product development falls short of expectations, and market competition intensifies.