Event: The company released its 2023 annual report and 2024 quarterly report. In 2023, the company achieved revenue of 4.14 billion yuan, -1.1% year on year; net profit to mother was 81 million yuan, +7.6% year on year; net profit after deducting non-return to mother was 78 million yuan, +12.5% year over year. 24Q1 achieved revenue of 1.06 billion yuan, +19.6% year over year; net profit to mother of 78 million yuan, +83.7% year over year; net profit after deducting non-return to mother of 73 million yuan, +223.62% year over year.

Comment:

Transmission business: Reduction and impairment calculation has basically been completed, and the profitability of the lightweight launch is expected to continue to be optimized.

In 2023, the company calculated asset impairment losses of 94 million yuan, mainly due to impairment of transmission production lines in the power systems business sector. The reduction work has now come to an end, and the company will go light in 2024.

24Q1 was in the low season for the industry. The company's revenue was 1.06 billion yuan, a slight seasonal decline compared to the previous month.

24Q1's gross sales margin was 21.0% (YoY +1.5pct, month-on-month +0.7pct) and net profit margin 7.31% (YoY +2.6pct, month-on-month +8.6pct). Both achieved significant improvements over the same period last year, and the company's business layout and operating efficiency continued to be optimized.

Interior and exterior sector: Outstanding revenue performance, binding high-quality core customers. In 2023, the company's interior and exterior parts segment generated revenue of 2.38 billion yuan, +7.7%, with a gross profit margin of 17.7%. Among them, in terms of HDM (horizontal seat drive), the company is deeply tied to premium seat tier 1 customers such as Faurecia, Lear, and ANDALTO. The terminals are equipped with leading new energy vehicle companies such as Tesla, Cyrus, Geely, and Ideal. The customer structure is superior. In 2023, HDM shipped more than 30 million units.

Wheel bearing sector: Domestic new energy customer expansion+overseas production capacity construction is expected to generate new volume.

In 2023, the company's wheel bearing parts revenue was 1.20 billion yuan, or -23.7% year-on-year, with a gross profit margin of 23.6%.

The decline in revenue in the wheel bearing business in 23 years was mainly due to overseas customers such as Autozone and NAPA leaving inventory, and the original OEM customers were mainly fuel vehicles. On the one hand, the company expanded new energy customers such as BYD and Krypton in '24. On the other hand, the new overseas plant in Thailand will be put into operation in May '24, with a monthly output of 45,000 units. It has obtained export certification from the US Customs. It is expected that wheel bearing products produced by the Thai factory are native to Thailand to further consolidate and expand the export advantages of wheel bearings.

New energy motor business: turning losses into profits and reaching a new level. The company's 180 flat wire motor 3-in-1 bridge platform began gradual mass production in September 23. The supporting model Wuling Binguo has benefited from the gradual mass production of the 180 flat wire motor 3-in-1 platform. The company's new energy electric drive factory has been profitable since the fourth quarter of 2023. Since 2024, the company has newly acquired the BAIC Foton Electric Project and the Wuling Commercial Vehicle Motor Electronic Control 2-in-1 Electric Bridge Project, and the NEV motor sector is expected to continue to improve.

New ball screw business: wheel bearing process collaboration is expected to open up a growth curve. With the company's accumulated technology in the field of wheel bearings, the company plans to lay out ball screws from the vehicle brake-vehicle steering-robot route. In the automotive sector, the company completed prototype manufacturing in April '24, and plans to achieve mass supporting production capacity (for EHB brakes) in December. The robotics sector plans to complete product research and budget work on H1 in '24.

Profit forecast: We expect the company's net profit for 2024-2026 to be 2.6, 330 million yuan, and 40 million yuan, corresponding EPS of 0.64, 0.82, and 0.99 yuan, respectively, and the corresponding PE is 17, 13, and 11 times, respectively.

Risk factors: risk of fluctuations in raw material prices; annual downward pressure on customers; volume of new projects falls short of expectations; overseas factories fall short of expectations.