Description of the event

The company released the 2023 annual report and the 2024 quarterly report. In 2023, it achieved revenue of 2,543 billion yuan, -14.09%; realized net profit of 140 million yuan, or -43.20% year-on-year; and realized net profit of 126 million yuan without return to mother, or -46.25% year-on-year. 2024Q1 achieved revenue of 608 million yuan, -6.34% year over year; realized net profit of 0.06 million yuan, -80.03% year over year; realized net profit without deducted net income of 0.4 million yuan, -86.72% year over year.

Incident comments

The gap in the 2023H2 overseas business environment shows the effects of factors such as the relocation of the production base and the failure to reach production capacity of the Vietnamese production base project, and the overall business situation is affected. Among them, in the overseas segment of the main business, the revenue growth rates of 23H1 and 23H2 were +10.5% and -34.6%, respectively, and the change in business conditions was quite obvious. In terms of business segments, control motors and their driving systems (-10.74% YoY), power and lighting system control (-26.26% YoY), equipment status management systems (-24.40% YoY), and trade products (-26.26% YoY) all declined to varying degrees. Among them, the company's main business is controlling motors and some new products with high added value and driving systems, and demand performance in traditional industries is weak. 1) The servo system business achieved revenue of 217 million, +16% year over year; the operating revenue of the control motor and drive system business in photovoltaic/lithium battery/semiconductor applications increased by about 22% year on year, and revenue in smart cars and autonomous driving/lidar applications increased by about 35% year on year. A number of new products have been added to hollow cup motors, and annual sales have increased by more than 80%. 2) The revenue performance of medical and biochemical laboratory equipment and robotics applications declined, while the revenue performance of brushless motors (-3% YoY) and precision linear transmission systems (-8% YoY) declined slightly. Traditional businesses are affected by fluctuations in demand, and demand in textile machinery (-28% YoY), security monitoring (-11% YoY), financial equipment (-17% YoY), and communication equipment (-42% YoY) is relatively weak.

Profitability is under short-term pressure, and there is room for repair. Mainly affected by the decline in revenue, the company's gross margin in 2023 was 37.19%, -1.01 pct year on year, net sales margin was 5.58%, -2.83 pct year on year, and profitability declined year on year. The increase in cost ratio performance during the period was mainly due to continued increase in R&D investment and net exchange gains, which were relatively low, and R&D cost rates and financial expense ratios increased year-on-year. However, sales expenses and administrative expenses were generally controlled, and expenses decreased over the same period last year. In 2023, the company's sales expense ratio, management expense ratio, financial expense ratio, and R&D expense ratio were -0.27pct, +1.03pct, +0.45pct, and +1.99pct, respectively.

Looking ahead to subsequent business recovery, there is room for improvement in profitability.

24Q1 was still limited by overseas customers continuing to absorb inventory. Demand declined slightly, but the decline in quarterly revenue growth had narrowed, indicating a marginal improvement in business conditions. At the same time, the cost rate improved slightly year-on-year during the 24Q1 period, -1.07pct year on year. However, since the company previously increased the procurement volume of scarce raw materials such as bulk raw materials and key components to meet customer order trends, the company's 24Q1 business performance was affected by current customer order demand or cancellations or delays, inventory consumption of related materials is slowing down, and inventory prices are falling and preparing to rise. Looking ahead to this year, new products with high added value are expected to continue to contribute to growth. We look forward to the progress of overseas inventory removal to drive improvements in overseas business operations and the restoration of the company's performance.

Maintain a “buy” rating. The company is expected to achieve net profit of 2.05 billion and 299 million in 2024-2025, corresponding to PE of 103x and 71x, respectively, maintaining a “buy” rating.

Risk warning

1. Performance recovery falls short of expectations;

2. The humanoid robot business development fell short of expectations.