Incident: The company released its 2024 quarterly report. The 24Q1 revenue was 2.33 billion yuan, +8.97% year over year; net profit to mother was 120 million yuan, +8.00% year over year. The small profit increase was mainly due to fluctuations in the US dollar exchange rate, which led to a decrease in revenue from current delivery and forward foreign exchange settlement. 24Q1 deducted non-net profit of 118 million yuan, a year-on-year increase of 11.24%, and steady growth in performance.

Refined management has paid off, and the cost rate has dropped significantly during the period. The 24Q1 company's gross profit margin was 13.5%, a slight decrease of 0.6 percentage points from the previous year; the net profit margin was 5.6%, up 0.1 percentage points from the previous year, mainly due to the increase in exchange earnings due to the appreciation of the US dollar. The cost ratio for the 24Q1 period was 7.75%, down 1.15 percentage points year on year. Among them, sales, management, R&D, and finance expenses were 2.07%, 2.23%, 2.88%, and 0.57%, respectively, and -0.20/-0.05/-0.29/ -0.61 percentage points year on year.

The categories of friction and ventilation products are constantly being enriched. In the motorcycle market, the company has seized the opportunity of consumption upgrades, strengthened technological innovation and product upgrades, launched a number of high-end, high-displacement power products, and continuously enriched motorcycle engine product categories. Furthermore, the company continues to increase investment in the field of intelligent manufacturing, and has now completed 2 intelligent production lines, further improving production efficiency. In the field of ventilation, in addition to improving traditional products such as gasoline engines, generators, agricultural and garden machinery, the company launched a series of innovative products such as 24V DC generators, plant protection drone charging generators, and personalized agricultural machinery to meet the continuous upgrading needs of users.

Taking advantage of the low-altitude economy, the aviation development business is expected to become the second growth curve. In recent years, the company's aviation development subsidiary has been working hard in the field of aero-piston engines, and has achieved a series of honors and achievements in R&D and innovation.

At present, Zongshen Hangfa has formed a product line focusing on aviation piston engines below 200HP, built five basic product platforms, and launched more than 20 derivative products and propeller products, covering the drone and light general aviation aircraft markets.

Follow the development trend and actively lay out the field of new energy. Facing development opportunities in the “dual carbon” field, the company is actively laying out the new energy market in addition to its traditional main business, building two major product fields: new energy power systems and energy storage.

At present, the company's new energy products cover the three major business areas: power system business (power battery, motor, electronic control), energy storage business (portable energy storage, household energy storage, industrial and commercial energy storage), and hydrogen energy business (hydrogen fuel cell systems of 30 kW and below).

Profit forecasting and investment advice. The company's net profit for 2024-2026 is expected to be 6.3, 7.2 billion yuan, and 820 million yuan, respectively, corresponding EPS of 0.55, 0.62, and 0.71 yuan, respectively. The compound net profit growth rate for the next three years is 31.2%, giving the company a target PE of 26 times in 2024, corresponding to a target price of 14.3 yuan, covering the first time, giving it a “buy” rating.

Risk warning: risk of fluctuating demand in the terminal market, risk in overseas markets, new business development or falling short of expectations.