1Q24 slightly lower than our expectations

The company announced 1Q24 results: revenue of 980 million yuan, +5.5/ -2.8%; net profit to mother of 216 million yuan, -6.8%/-30.4% month-on-month; net profit after deduction of 203 million yuan, or -11.6%/-25.1% month-on-month. Non-recurring profits and losses are mainly government subsidies. The gross margin was lower than our expectations, resulting in net profit after deduction slightly lower than our expectations.

Development trends

The company's revenue share of NEVs and NEV power generation is > 70%, which is divided by downstream prosperity:

(1) New energy vehicles maintain a high growth rate. We think the main reason is ① Vehicle sales are growing steadily at a year-on-year rate: according to the Passenger Federation, domestic wholesale sales of NEVs in 1Q24 were 1.95 million units, +30%; by brand, the wholesale sales volume of BYD, Tesla China, and other brands was +14%/-4%/+52%, respectively. Combined with the company's customer structure, we believe that the company's shipments are growing or faster than the industry average. ② Increased share: We believe that the company's product quality and brand are at the leading level in the world, and customers are expected to gradually switch from Japanese brands to company products. Furthermore, we believe that the increase in 800V penetration rate will have a certain increase in the company's share and the value of bicycles.

(2) PV energy storage revenue is under pressure. We think the main reason is ① industry inventory removal and high base: on the domestic side, according to the National Energy Administration, 1Q24 domestic PV installed capacity was 45.7 GW, +36%, and the growth rate was relatively steady; on the foreign side, 1Q24 domestic inverter export value was -46% year-on-year, while the export value for the same period last year was the highest in history in a single quarter. Inventory digestion has not yet been completed. Combined with the influence of a high base, 1Q24's shipments of thin film capacitors for optical storage declined year-on-year. ② Product price reduction: Due to weak demand and increased competition in the industry, we believe that 1H24's product prices may be under greater pressure.

Gross margin was under pressure in the first quarter, and attention was paid to subsequent cost-side improvements. The gross margin of the 1Q24 company was 33.1%, or -4.5pp/ -5.1ppt. We believe that the main reason was ① the increase in product prices due to increased competition and the continuous removal of some downstream warehouses, while the cost side showed gradual improvement throughout the year, leading to pressure on Q1 gross margin; ② the share of the automobile business with low gross profit increased. Looking ahead, we expect gross margins to be repaired quarterly. On the one hand, the supply of raw material substrates will increase or drive down their costs. On the other hand, the company's ability to optimize costs through technological innovation and production line efficiency measures was verified last year, and may continue to be effective for 24 years.

Profit forecasting and valuation

Considering price reduction pressure, we lowered our 2024/2025 net profit of 9%/9% to $1,10/1.25 billion yuan. The current stock price corresponds to 2024/2025 P/E 20.4x/17.8x. Maintaining an outperforming industry rating, the target price was lowered by 14% to 116.68 yuan due to the revised profit forecast, corresponding to 2024/2025 P/E24.0x/21.0x, an increase of 18% over the current stock price.

risks

Demand for new energy sources falls short of expectations; industry competition intensifies; risk of declining gross margin.