Key points of investment

The performance was in line with expectations. Net profit to mother increased 70.00% year on year in 2023. In 2023, the company achieved total operating income of 2,879 million yuan, up 47.68% year on year; net profit to mother was 202 million yuan, up 70.00% year on year; net profit after deducting non-return to mother was 182 million yuan, up 78.88% year on year. With 2024Q1, the company achieved total operating income of 464 million yuan, a year-on-year decrease of 19.30%; net profit to mother was 53 million yuan, an increase of 17.21%; net profit after deducting non-return to mother was 50 million yuan, an increase of 19.13% year-on-year.

Optical storage business: PV module sales have increased rapidly. The energy storage business is expected to start in 2023. The company's photovoltaic industry achieved sales volume of about 1.47 GW, an increase of 119.58% year on year; corresponding revenue of 1,971 billion yuan, an increase of 75.96% year on year; gross profit margin of 9.30%. The company's “1GW per year photovoltaic module project” was successfully put into operation, achieving a production capacity of 1.5 GW/year, with a daily output of about 7,500 pieces, and can produce various types of conventional or customized modules such as P type and N type. The company accelerated the construction of the “2GW annual high-efficiency solar photovoltaic module construction project”. Production equipment was introduced, installed and commissioned one after another in October 2023. Production was officially put into operation at the end of January 2024, and production capacity is gradually climbing. In the future, it is planned to further achieve a production capacity of 5 GW/year in the shortest possible time. Furthermore, the company has developed strategic cooperation in energy storage business with Shaanxi Changfeng Intelligent Technology Co., Ltd., and has entered a new energy storage circuit.

Motor industry: The range of products is widely used, and the overall business grew steadily in 2023. The company's motor industry revenue was 173 million yuan, an increase of 5.44% over the previous year; the gross profit margin was 8.96%. The subsidiary Zhejiang Special Electric focuses on R&D, production and sales of small and medium-sized motors and micro motors. The product application range covers the fields of refrigerators, air conditioners, elevators, and new energy vehicles. In line with customer needs, the company actively adjusts the product structure to accelerate the development of new markets such as the elevator business (especially the villa elevator business), commercial compressor business, and new energy vehicle business. For example, it signed the “General Rules for the Procurement of Productive Materials” with BYD, officially entered the BYD supply chain system, and has now been supplied in batches; it has also accepted factory inspection work from some NEV manufacturers.

White goods components: The market share is leading in the industry. Profit remained at a high level in 2023. The company's white goods industry revenue was 701 million yuan, an increase of 11.36% over the previous year; the gross profit margin was 32.16%. As key components in the field of household appliances such as refrigerators, freezers, air conditioners, refrigerated water dispensers, washing machines with drying functions, etc., the market share of starters, heat protectors, and sealed wiring column products produced by the company is in a leading position in the industry. The product direction of the subsidiary Xinduan is focused on the segment of thermostats for small household appliances. Xinduan has long focused on technology research and product upgrades in this segment, forming a good brand advantage.

Profit forecasting and valuation

Lowering profit forecasts and maintaining a “buy” rating: The company is a leader in compressor parts, the white power business is developing steadily, and the optical storage business creates room for growth. Considering that the development of the energy storage business fell short of expectations, we lowered the company's profit forecast for 2024-2025 and added a profit forecast for 2026. The company's net profit for 2024-2026 was 2.49, 3.02, and 354 million yuan (net profit to mother before the reduction was 2.96 million yuan and 397 million yuan, respectively), up 23%, 21%, and 17% year over year, respectively, corresponding to EPS of 0.81, 0.98, and 1.15 yuan/share, respectively, PE 12, 10, and 9 times, respectively.

Risk warning

Downstream demand falls short of expectations; energy storage business development falls short of expectations.