We believe that Xinjie can actively expand into high-value-added core fields such as AI servers and new energy vehicles based on its own sufficient product models, and that the relevant customers are all leading companies in the industry. Thanks to product structure and application optimization, 2024Q1's profitability has been significantly optimized, and the company is expected to achieve rapid profit growth as it continues to grow in core areas in the future.

Product structure and application field structure optimization drive continuous repair of gross margin. The power electronics sector showed some performance pressure in 2024Q1. Among them, Xinjie Energy's profit growth rate and gross margin improvement performance was impressive. Among them, the 2024Q1 company's comprehensive gross profit margin was 34.76%, an increase of 3.34 pct over the previous year, and 2.99 pct over the previous year.

We believe that the main reason is: 1. The continuous optimization of the company's product structure, market structure and customer structure promotes the introduction of more product numbers through its own customer stickiness, while actively advancing in high-value-added fields such as new energy vehicles and AI servers. 2. Continuous optimization on the cost side. In the future, along with the continuous enrichment of the company's own products and the continuous expansion of downstream application fields, the company is expected to maintain a growth trend in performance.

AI field: Achieve mass sales to customers with leading computing power, and the scale can be expected in the future. According to the company announcement, in 2023, the company promptly responded to market demand, continued product promotion, and continued to gain more market share in the traditional server field. At the same time, the company uses its own advantages to develop products around AI computing power-related needs and actively promote them to customers. Currently, the company's related products have been sold in bulk to leading customers in the AI computing power field, and the company expects the related scale to grow further.

It is expected that the scale and proportion of automotive electronics may increase rapidly. On the automaker side, the company has directly supplied BYD's full range of models since 2023, and various products can be supplied in large quantities. In terms of leading tier 1, the company continues to make large-scale shipments to leading manufacturers such as United Electronics and Bethel. Among them, the company has obtained more than 20 fixed automotive electronics targets from United Electronics, and the project will continue from 2024 to 2029. At the same time, the company expects the overall sales scale and share of automotive electronics products to increase rapidly in the future.

MOSFETs: old products, new opportunities. MOSFETs are a key product in power electronics. According to Yole's forecast, silicon-based MOSFET tubes will still account for about 30% of the power electronics market share by 2028. We believe that at present, the field of AI and new energy vehicles may become a field of rapid development of MOSFETs. Along with the huge electricity demand for AI servers and data centers, the multi-phase Buck power supply, including controllers and DrMOS, is a high-quality solution for CPU/GPU power supply applications; in the field of new energy vehicles, the MOSFET content is expected to reach 400 in mid-range and high-end models, and at the same time, with the abundance of in-vehicle communication and in-vehicle entertainment, spawning huge 48-12V or 400-12V The demand for DC-DC conversion is driving the demand for low voltage MOSFETs to increase.

Profit forecast and investment advice: We expect the company's 2024E/2025E/2026E to achieve operating income of 19.2/24.0/3.03 billion yuan, yoy 30.0%/25.0%/26.3%; net profit to mother of 4.5/5.4/7.0 billion yuan, yoy 39.2%/19.6%/30.1%, corresponding to the current PE of 24.5/20.5/15.8x, respectively, maintaining a “highly recommended” rating.

Risk warning: Downstream demand falls short of expectations, new product development falls short of expectations, and market competition intensifies.