Key points of investment:

Announcement: In 2023, the company achieved revenue of 5.174 billion yuan, YoY +15.84%; net profit to mother of 441 million yuan, YoY +0.76%; net profit without return to mother of 359 million yuan, YoY -14.31%, which is lower than expected. 1Q24's revenue was 1.363 billion yuan, YoY +51.06%; net profit attributable to mother was 123 million yuan, YoY +37.72%; net profit after deducting non-return to mother was 100 million yuan, YoY +39.57%. First-quarter results surpassed expectations.

1Q24 The company's net profit without return to mother grew by nearly 40%, improving profitability. In 2023, the company's gross margin reached 22.25%, and the net margin reached 8.51%. 1Q24's gross margin reached 22.08%, net profit margin 9.11%, and net profit margin increased 3.7 pct over the previous month.

According to the company's announcement, revenue from high-margin products achieved relatively rapid growth in 2023, and the gross margin of the non-NEV sector increased by 1.14 percentage points.

Increase investment in R&D and accelerate international business expansion. In 2023, the company's R&D expenses reached 310 million yuan, a year-on-year increase of 26.17%; 1Q24 R&D expenses increased 51.76% year-on-year, and the R&D expenditure rate reached 6.65%. The international business expanded at an accelerated pace, and the company's export sales ratio increased by 2.8 pct to 33.70%.

The fast charging power upgrade is expected to continue to boost the ASP of the company's products, with downstream applications from 1 to N. 1) By the end of 2023, the maximum charging power of the phone's standard charger had reached 240W, and the maximum wireless charging power had been raised from 50W to 80W. 2) Benefiting from trends such as the Internet of Everything, cordless power tools, the popularity of outdoor camping, and the development of third-party charging brands, the company's charging and storage business is moving from mobile phones to the entire ODM/PC/power tool ecosystem.

In 2023, the company's NEV electronic control and product solution revenue reached 547 million yuan, an increase of more than 50% over the previous year. As of 2023, the company has achieved targeted mass production of more than 100 models for 30 customers including traditional car companies and new car companies, and has developed and supported more than 1 million distributed electronic control (MCU/BMS/VCU) sets.

The digital energy business volume is being replaced by domestic production. 1) According to the 2023 annual report, the company's single-phase 6kW energy storage inverters have completed grid-connected certification to various European standards. Research and development of products such as three-phase 10kW, off-grid inverters, national standard and European standard charging piles is progressing smoothly, and products such as energy storage systems and integrated charging/discharging guns have been mass-produced and sold. 2) The company is actively developing business in the field of data center server power supplies. At present, it has completed mass production and development of 2000W mainstream server power supplies and 2000W server backboard power supplies. CRPS server power supplies have been mass-produced and supplied as serial products (550W/800W/1300W/1600W/2000W), and supporting PDB server backboard power supplies have also been delivered in batches.

The profit forecast was lowered and the “buy” rating was maintained. Taking into account the increase in the company's share of overseas revenue and increasing R&D investment to accelerate the international layout, the 24-25 net profit forecast was lowered to 58,000,000 yuan or 730 million yuan (the original forecast was 670 million yuan and 890 million yuan), and the additional 26-year forecast net profit to the mother was 950 million yuan. The current stock price is 16, 13, and 10x for 24-26 PE, respectively, maintaining a “buy” rating.

Risk warning: 1. Market competition increases risk; 2. Risk of fluctuations in raw material prices; 3. Risk of exchange rate fluctuations.