Incident: The company released its 2023 annual report and 2024 quarterly report. In 2023, it achieved operating income of 5.174 billion yuan, an increase of 15.84% over the previous year; realized net profit of 441 million yuan, an increase of 0.76% over the previous year; and realized net profit without return to mother of 359 million yuan, a year-on-year decrease of 14.31%. 24Q1 achieved operating income of 1,363 billion yuan, a year-on-year increase of 51.06%; realized net profit of 123 million yuan, an increase of 37.72% over the previous year; realized net profit without deduction of 100 million yuan, an increase of 39.57% over the previous year.

23Q4 revenue reached a record high, and the business structure was continuously optimized:

Looking at the single quarter, 23Q4 achieved revenue of 1,606 billion yuan (yoy +43.69%, qoq +3.49%), a record high in the single quarter, and achieved net profit of 92 million yuan (yoy +63.55%, qoq -30.72%), affected by exchange rate fluctuations, equity incentive amortization, increased R&D investment, and year-end expense accrual; 24Q1 continued the upward trend, and the company's revenue and performance both achieved high year-on-year growth. The company continued to increase R&D investment, and R&D expenses reached 308/091 million yuan (yoy +26.17% /yoy +51.76%) respectively in 2023/24Q1. In 2023, the company's international business expanded at an accelerated pace, and the export ratio increased to 33.70% (yoy+2.80pct); revenue from high-margin products achieved relatively rapid growth, and the gross margin of the non-NEV sector increased by 1.14 pct. The company continues to make progress in R&D innovation, market expansion, and operation expansion, and long-term steady growth can be expected.

The product matrix continues to be improved, and application scenarios are further opened up:

1) Consumer electronics: In 2023, the charger and adapter business achieved revenue of 3,959 billion yuan (yoy +12.74%) and a gross profit margin of 20.65% (yoy+1.30pct). 1.1) Mobile phones: The company has developed new industry-leading products such as the 240W PD3.1 power adapter, and various high-power chargers have become standard for the brand's flagship phones. The company has completed the product layout in the 20-200W mainstream fast charging power segment. We believe that the mobile phone business will continue to benefit from the recovery of the terminal market, the increase in fast charging penetration rate and power, and the increase in the company's share. 1.2) Non-mobile phones: The company has established stable cooperation with many top brand customers at home and abroad in the fields of security, laptops, wearables, smart homes, etc., and has continued to make breakthroughs in wireless chargers, power tool power supplies, and independent brands, and there is still huge room for penetration in the non-mobile phone market.

2) New energy vehicles: In 2023, the NEV electronic control business achieved revenue of 547 million yuan (623 million yuan in 2022, 22H2 and 364 million yuan), with a gross profit margin of 17.97% (yoy-5.30pct). The price war and storage pressure of car companies were transmitted to the upstream supply chain. By the end of 2023, the company's products had achieved targeted mass production for more than 100 models for 30 customers, distributed electronic control (MCU/BMS/VCU) had more than 1 million sets of development and supporting experience, and expanded in other markets such as eVTOL. The company has completed ASPICE L2 certification and functional safety architecture layout; the development of various cost-effective power domain control combination products, high-performance central domain control (ZCU), 800V SiC MCU, etc. is progressing smoothly; it has completed the development of the left/right/front area domain control ZCU and reached the loading state, and the power domain control PDCU1.0 has been developed and fixed; the low-voltage BMS has completed the development and mass production of the three major platforms; the first dual-motor controller has been mass-produced; NE era data shows that Zhixin controls 2023 new energy passenger vehicle hybrid Dual electronic control ranked 8th in installed capacity.

3) Digital energy: In 2023, energy storage and other businesses achieved revenue of 667 million yuan (yoy +12.98%) and a gross profit margin of 35.24% (yoy+0.20pct). 3.1) Optical storage and charging: The company's single-phase 6kW energy storage inverters have completed grid-connected certification of various European standards. The development of products such as three-phase 10kW, off-grid inverters, national standard and European standard charging piles is progressing smoothly, and energy storage systems and integrated charging/discharging guns have been mass-produced and sold. 3.2) Server power supply: Mass production and development of 2000W mainstream server power supplies and 2000W server backplane power supplies have been completed; CRPS server power supplies have been mass-produced and supplied as serial products (550-2000W), and supporting PDB server backboard power supplies have also been supplied in batches; some high-power products are used in AI servers.

Pay attention to investor returns, and the dividend intensity is steadily increasing:

The company disclosed the 2023 profit distribution plan. It plans to distribute cash dividends of RMB 6 (tax included) to all shareholders for every 10 shares, based on a total share capital of about 276.04 million shares at the end of 2023, and plans to distribute a total of about 166 million yuan (tax included). Previously, the company implemented an equity distribution plan for the first three quarters of 2023 in November last year, and distributed a total of about RMB 83 million (tax included) to all shareholders.

Investment advice:

We expect the company's revenue for 2024-2026 to be 7.143 billion yuan, 8.475 billion yuan and 99.80 billion yuan, respectively, and net profit to mother will be 646 million yuan, 801 million yuan, and 981 million yuan respectively, giving 18 times PE in 2024. The corresponding target price is 42.12 yuan, maintaining a “buy-A” investment rating.

Risk warning: downstream demand falls short of expectations, new business expansion falls short of expectations, fluctuations in raw material prices, exchange rate fluctuations, etc.