Incident: 1) The company released its 2023 annual report. In 2023, it achieved operating income of 3.106 billion yuan, a year-on-year decrease of 2.95%; net profit to mother was 138 million yuan, a year-on-year decrease of 6.49%. 2023Q4 achieved operating income of 589 million yuan, a year-on-year decrease of 14.41%; net profit to mother was 15 million yuan, an increase of 165.22% year-on-year. 2) The company released its 2024 quarterly report. 2024Q1 revenue was 773 million yuan, down 4.60% year on year, and net profit to mother was 38 million yuan, down 5.84% year on year.

Bearings declined slightly, and auto parts achieved steady growth. In 2023, the company's bearing industry achieved revenue of 1,789 billion yuan, down 5.12% year on year, mainly affected by inventory removal and insufficient demand from major customers; auto parts industry achieved revenue of 430 million yuan, up 9.29% year on year; thermal management system components achieved revenue of 827 million yuan, down 1.26% year on year.

The company's profitability is basically stable, and its ability to control expenses is good. 1) The comprehensive gross margin in 2023 was 17.54%, down 0.24pp year on year, of which the gross profit margin of bearings was 18.01%, down 0.03pp; the gross profit margin of auto parts was 19.66%, up 1.19pp year on year; and the gross profit margin of thermal management system components was 12.66%, up 0.02pp year on year. The Q1 gross profit margin in 2024 was 16.29%, up 0.06pp year over year.

2) The company's expense ratio for the 2023 period was 11.21%, with sales/management/R&D/finance expense ratios +0.57pp/-1.14pp/+0.08pp/-0.23pp, respectively. 3) The company's net interest rate in 2023 was 4.63%, down 0.33pp year on year. Net profit margin for Q1 2024 was 4.92%, down 0.14pp year over year.

Auto parts, wind power rollers, and robotics businesses drive growth. ① New energy vehicle bearing volume: including ball ring needle roller bearings in chassis transmission systems, third-generation wheel bearing units, drive motor bearings, transmission bearings, etc.; ② The trend of rolling wind power variable propeller bearings drives wind power roller release; ③ Screws: The company will strive for small-scale production of new energy vehicle steering and braking systems in 2024; complete the process definition and equipment selection of planetary ball screw products.

Profit forecasting and investment advice. The company's net profit for 2024-2026 is expected to be 193 million yuan, 270 million yuan, and 356 million yuan respectively, corresponding to EPS of 0.52, 0.73, and 0.96 yuan, respectively. Net profit to mother will maintain a compound growth rate of 37% over the next three years. The 2024 45X PE was given, corresponding to a target price of 23.40 yuan. It was covered for the first time, and a “buy” rating was given.

Risk warning: risk of downstream demand falling short of expectations; risk of increased market competition; risk of fluctuating raw material prices.