Introduction to this report:

Increased competition affected gross profit, and cost rigidity affected net profit, leading to a shift from profit to loss in 2023. The company changed the direction of the exhibition business from quantity to quality, strengthened cost control, and reversed losses in 24Q1.

Key points of investment:

Maintaining the “Overweight” rating, the target price was lowered to 19.1 yuan. Increased competition affected the company's net profit after deducting profit of -125 million yuan in 2023, and the charging/exchange/automotive/battery equipment business achieved revenue of 1.2/6.3 billion yuan (YoY -60.2%/16.3%/113.5%), respectively. The results fell short of expectations. Considering the slowdown in the construction of power exchange stations, domestic automobile/battery equipment will maintain fierce competition, lowering the 2024-2025 EPS to 0.12 (-1.78) /0.29 (-2.3) yuan, and adding 0.56 yuan for 2026: reference can compare the company and consider that the company has more room for performance. The target price will be reduced to 19.1 yuan, and the target price will be lowered to 19.1 yuan to maintain the “gain” rating.

With quality as the focus of the exhibition industry, cost control has begun to bear fruit, and gross margin has recovered since 24Q1. Starting in 2024, the company shifted the focus of the exhibition business from revenue scale to profit, increasing gross margin by 26.57pct to 28.22% month-on-month; at the same time, cost control was strengthened, and the cost ratio for the period was reduced to 24.83% (QoQ24.24pct), and 24Q1 achieved net profit withheld from mother of 0.1 billion yuan (YoY +124.46%).

Orders are confirmed quarterly, and the superposition fee control work is progressing, and the company's performance is expected to continue to recover.

Domestic market expansion affects gross profit margins, and in 2024, the company will focus on expanding high-margin overseas markets. The company expanded customers such as Sunwoda and Everweft Lithium Energy, but the price competition in the domestic automobile/battery/charging and switching market was fierce. The gross margin of the three businesses fell by 12.89/8.34/3.7 pct month-on-month, respectively, and the overall gross margin fell to 20.15% (YOY-8.15pct). The gross margin of the overseas business in 2023 is 33.86 pct higher than the domestic business. In 2024, the company will focus on expanding the overseas battery and automotive electronic equipment business to improve gross margin performance.

Net interest rates were put under pressure due to pre-expenditure expenses for the period. Charging and switching equipment needs to reach customers. At the same time, battery/automotive equipment is a customized product. The company continued to increase sales and R&D investment. The cost rate reached 27.51% (YoY +11.89%) during 2023, which had a negative impact on performance.

Risk warning: 1) Order confirmation falls short of expectations and affects performance; 2) Customer payments fall short of expectations.