Incident: The company released its 23 annual report and its quarterly report for '24. It achieved revenue of 38.60 million yuan and 764 million yuan, down 11.16% and 12.30% year on year; realized net profit of 4.51 billion yuan and 56 million yuan, down 35.02% and 30.63% year on year, achieving net profit without deducting back to mother of 387 million yuan and 43 million yuan, a year-on-year change of -37.31% and +2.19%, with basic earnings per share of 0.58 and 0.07 yuan.

With the exception of innovative consumer electronics, all achieved good growth in 2013. Q1 revenue and profit declined: 4Q23/1Q24 achieved operating income of 9.00/764 million yuan, down 7.79%/12.30% year on year, and realized net profit of 1.17/56 billion yuan, down 25.51%/30.63% year on year, and 1Q24 revenue and profit all declined.

By business, revenue from innovative consumer electronics in '23 was 1,155 billion yuan, down 48.37% year on year. Intelligent control components, automotive electronics, and health and environmental products increased by 30.50%, 42.82%, and 36.77% to 13.31, 5.14, and 378 million yuan, respectively, and the revenue share of the top five major customers fell to 48.52%.

Gross margin increased in '23, and the decline in revenue affected the expense ratio. Net profit margin declined: in '23, the company's gross profit margin was 30.70%, up 0.27pct year on year. By business, the gross margin of innovative consumer electronics, intelligent control components, and automotive electronics products changed by -4.00/+3.67/-1.18pct year-on-year, respectively. In terms of the cost ratio for the period, the sales expense ratio increased 0.31 pct to 2.27% year on year, the management expense ratio increased 0.20 pct to 4.72% year on year, the R&D expense ratio increased 0.79 pct to 9.37% year on year, and the financial expense ratio increased 2.28 pct to -0.64% year on year, mainly due to reduced exchange earnings. Under the combined influence of the reduction in exchange earnings, the company's net interest rate decreased by 3.84 pct to 12.46% year on year.

E-cigarettes achieved mass production of complete machines, and UDM's intelligent manufacturing business blossomed: the company's revenue for intelligent control components in the UDM intelligent manufacturing business was 1,331 billion yuan, up 30.50% year on year, and revenue from innovative consumer electronics products was 1,155 billion yuan, down 48.37% year on year. The revenue decline was mainly affected by fluctuations in order demand from some customers. In the field of e-cigarettes, the company successfully achieved mass production of e-cigarette core components and complete machines, and obtained cooperation from major customers on multiple smart pet products in the field of pet machines. Related technology. In the field of smart healthcare, the company has obtained qualification certifications for products related to the medical device field, etc., and products such as smart thermometers have been successfully mass-produced and delivered.

Profit forecast and rating: We expect the company's net profit for 24-25 to be 6.14 billion yuan and 774 million yuan respectively, with year-on-year growth rates of 36.3% and 26.1%. The closing price on May 31 corresponds to the 24-25 PE of 16.5 and 13.1 times. Refer to the comparable company giving the company a PE valuation of 20 to 22 times in 24 years, corresponding to a reasonable value range of 15.80 to 17.38 yuan, giving a “superior to the market” rating.

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