Incident: The company released its 2023 report and 2024 quarterly report. In 2023, we achieved operating income of 47.748 billion yuan, +14.00% year-on-year; realized net profit of 2.305 billion yuan, or +20.77% year-on-year. 24Q1 achieved operating income of 9.328 billion yuan, -13.24% year on year; realized net profit to mother of 502 million yuan, -18.64% year over year.

Volume: Demand for downstream two-wheelers is strong, and lead-cycle energy storage is being shipped on a large scale. In 2023, the company's lead-acid battery product revenue was 44.4 billion yuan, +19% year-on-year; lead-acid battery shipments were 125 GWh, +25% year-on-year, and both revenue and shipments achieved a high level of growth. Mainly due to (1) the concentrated release of downstream demand accumulated in 2022 at 23H1; (2) the high price of lithium batteries for competitive two-wheelers, and the significant advantages of lead-acid batteries in terms of cost performance and safety. The 24Q1 company achieved revenue of 9.3 billion yuan, a slight year-on-year decline compared with the high base of 23Q1. Referring to intelligent research consulting data, the leading effect of lead-acid batteries is becoming more and more prominent, and the current CR2 market share has reached 49%. In addition, in 2023, the company completed lead-carbon battery business revenue exceeding 300 million yuan, +115% over the same period, and realized the operation of the world's largest single lead-carbon energy storage power station - the “Peaceful Co-storage Project”, which played an excellent demonstration role for future new power plant development cooperation. Considering the increase in market concentration and strong downstream demand, and the implementation of energy storage application cooperation one after another, it is expected that the company's lead-acid battery shipments will maintain a year-on-year growth rate of more than 10% in 2024.

Price: High-end products continue to be upgraded, and smooth prices are expected to be achieved in Q2. In 2023, the company continued to promote product upgrades and launched major new products such as TianNa T1, lithium manganese TP-MAX, and Paoda start-stop batteries. In addition, the company focuses on promoting the A+ series of “cost-effective” products to seize the market through core selling points such as “long life, high water retention, and large capacity”. According to estimates, the unit price of the company's lead-acid batteries in 2023 was about 0.4 yuan/Wh, the same as the previous year, benefiting consumers on the basis of improving product quality. According to Wind data, the LME lead price rose from 2031 US dollars/ton at the end of 2023 to 2184 US dollars/ton at the end of April 2024, and the price of LME tin rose from 25,175 US dollars/ton to 32,300 US dollars/ton, and the company experienced a significant increase on the cost side. According to the company's pricing mechanism linked to raw material prices, smooth prices are expected to be achieved in 24Q 2, and the unit price of the product is expected to rise.

Benefit: Stable profitability. The gross margin of the company's lead-acid battery business reached 19% in 2023, which is at a historically high level. According to estimates, the net profit per unit of lead-acid batteries is about 0.02 yuan/Wh, which is the same as the previous year, and the company's ability to control costs and expenses has been enhanced. The company's gross margin fell slightly to 16% in 24Q1, mainly due to short-term increases in raw material prices. It is expected that the gross margin will return to the historical average after favorable prices.

The final window of the new national standard has arrived, and testing and replacement have led to an increase in demand. April 2024 is the final transition period stipulated in the “Electric Bicycle Safety Technical Specification GB 17761-2018”. Testing and replacement requirements may be released centrally within 2 months before and after. Furthermore, in 2024, policies such as “oil to electricity” and “ban on motorcycles” in Southeast Asia are progressing steadily, and the company will establish its first overseas base in Vietnam. As overseas demand for electric light vehicles increases further, the downstream market space will expand again.

Profit forecasting and investment advice. EPS is estimated to be 2.61 yuan, 2.89 yuan, and 3.18 yuan respectively in 2024-2026, and the corresponding PE is 11 times, 10 times, and 9 times, respectively. The company's leading position is stable, reforms and innovation actions continue to be implemented, optimistic about high-quality future development, and maintains a “buy” rating.

Risk warning: risk of new product technology substitution; risk of core technology leakage and loss of core personnel; risk of development of new products and technologies; risk of dealer management; risk of large fluctuations in raw material prices; risk of product quality and production safety; environmental protection and occupational health risk; inventory management risk; financial risk; industry policy risk; risk of increased market competition; macro-environmental risk.