Incident: The company released its 2023 annual report and 2024Q1 quarterly report. In 2023, it achieved revenue of 2,377 billion yuan, and realized net profit of 133 million yuan, or -23.58% year on year, after deducting non-net profit of 111 million yuan, 30.82% year on year, gross profit margin of 18.18%, and +1.20 pcts year on year. 2024Q1 achieved revenue of 447 million yuan, -6.54% year on year, realized net profit to mother of 0.15 million yuan, or -54.44% year on year, deducted non-net profit of 11 million yuan, -51.88% year on year, gross profit margin of 17.16%, and -0.36 pcts year on year.

Steady revenue and profit pressure: Although the company's revenue increased in 2023, overall profit was under pressure, mainly due to:

1) The Songshan Lake Operation Center and Jiangxi Industrial Park were put into use, and sales and management expenses increased. 2) The USD/RMB exchange rate is high and stable, and there are no additional exchange gains. 3) Some inventory and accounts receivable have experienced credit impairment.

The results and causes of 2024Q1 are similar to those for the full year of 2023.

Wearable products have a lot of room for growth in the future: as a leading enterprise in the electroacoustic industry, the company maintains a high level of headphone product sales, accounting for 78.41% of revenue in 2023, an increase of 19.6535 million yuan over 2022; speaker products account for 17.54% of revenue in 2023; the company actively lays out smart wearable products such as smart watches, smart glasses, etc., to broaden its product matrix, with smart wearable series products accounting for 3.43% of revenue in 2023. With the deepening of the company's layout in new fields, the share of smart wearable series products in revenue has increased. In the XR field, the consumer-grade AR glasses “INMO GO” produced by the company for Imaging Technology went on sale in September 2023; in the field of bone conduction, the company has more than 60 patents for related products, and has produced related products earlier in China. With the advent of AI in the future, AI+ intelligent hardware is expected to bring plenty of room for imagination.

Investment advice: The company's revenue is steady and profits are under pressure, and there is plenty of room for imagination in the wearable market in the future.

We expect the company's 2024-2026 net profit to be 175/2.07/244 million yuan, EPS is 0.52/0.61/0.72 yuan/share, corresponding PE is 25.68/21.73/18.41 times, maintaining the “gain” rating.

Risk warning: Consumer electronics demand recovery falls short of expectations; AR industrialization falls short of expectations; AI hardware demand falls short of expectations.