Incident: Yinghe Technology released its 2023 annual report: The company's revenue for 2023 was 9.75 billion yuan, up 8.09% year on year; realized net profit to mother of 554 million yuan, up 13.62% year on year; realized net profit after deduction of 536 million yuan, up 13.96% year on year.

The company's 2024Q1 revenue was 1,866 billion yuan, up 7.37% year on year, down 17.17% month on month; realized net profit of 159 million yuan, up 53.87% year on year, up 268.23% month on month; realized net profit deducted from non-return mother was 157 million yuan, up 97.53% year on year and 107.51% month on month.

Special equipment for lithium batteries is exchanged for price. The company's revenue for lithium battery special equipment in 2023 was 6.408 billion yuan, down 25.01% year on year, sales volume was 1,330 units, down 36.58% year on year, with an average price of 4.62 million yuan/unit, up 19.16% year on year. The company's gross profit margin for lithium battery special equipment in '23 was 19.56%, up 0.61 pcts year on year.

Skoll's performance grew rapidly, and profit margins increased. In '23, the electronic cigarette business holding subsidiary Scholl achieved revenue of 3.341 billion yuan, a year-on-year increase of 512 percent, and net profit of 1.0 billion yuan, an increase of 1071%; an operating profit margin of 35.11% and a net interest rate of 29.93%, an increase of 14.28 pcts year-on-year. The profit and loss of minority shareholders of the 24Q1 company was 130 million yuan, a rapid increase of 154.78% year on year and 8.79% month on month. According to an estimate of 49% of minority shareholders' shareholding ratio, Scholl achieved net profit of about 265 million yuan, and the performance continued to be impressive.

Lithium battery equipment expanded its circle to car company customers, leading the overseas layout. The company has been deeply involved in the field of lithium battery equipment for 17 years, achieving technical leadership in coating, rolling, laser die-cutting, laminating and assembly lines. The core products have been supplied to first-class battery companies and car companies including Ningde Era, BYD, LG New Energy, and German Volkswagen. In '23, the company successfully expanded into new customers in the car industry category, and received orders from Volkswagen, Aeon, Extreme, Geely, etc. The company is also the first domestic lithium battery equipment company to “go global” and directly receive orders from overseas customers. Its products have been exported to many countries such as Germany, South Korea, and France.

The company has outstanding advantages in e-cigarette products, technology and channels, and has achieved breakthroughs in the British and European markets. The United States, the United Kingdom, and Canada are the top three e-cigarette consumer markets in the world, and China is a major e-cigarette exporter. According to statistics from China's General Administration of Customs, China's e-cigarette exports in 2023 were US$11.08 billion, up 12.48% year on year, to 167 countries and regions around the world, an increase of 10 countries over 2022. In 2023, the company seized opportunities in overseas European markets, obtained European TPD certification, and established a wholly-owned subsidiary SKE E-CIGS UK LTD in the UK. Rapid growth in the European market can be expected.

Profit forecast, valuation and rating: Maintain the company's 24-year net profit forecast of 1,096 billion yuan. Considering changes in product structure or decline in profitability, the 25-year net profit forecast was lowered by 14.6% to 1,270 billion yuan, and the 26-year net profit forecast was added by 1.462 billion yuan. The PE corresponding to the current stock price is 10/8/7x. The business of the company's Scholl subsidiary has developed rapidly and has become the company's main source of profit. The e-cigarette business performance continues to be impressive. After the disclosure of the quarterly report in '24, the certainty of performance increased, and the valuation was in the bottom range, and the rating was raised to a “buy” rating.

Risk warning: risk of macroeconomic cycle fluctuations, policy risk, risk of new product development falling short of expectations.