The company's performance in fiscal year 23 and 24Q1 was excellent. The company's annual revenue for '23 was 85.6 billion yuan, up 15.5% year on year, and achieved net profit of 2.84 billion yuan to mother, an increase of 97.7% year on year. Among them, Q4 achieved revenue of 20.70 billion yuan in a single quarter, an increase of 21.13% over the previous year, and realized net profit of 411 million yuan to mother, an increase of 12.66% over the previous year. The company's revenue and profit performance in Q4 was excellent, and the revenue growth rate in the single quarter was better than in Q3. In the first quarter of '24, we achieved revenue of 23.486 billion yuan, an increase of 20.87% over the previous year, and achieved net profit of 981 million yuan, an increase of 59.5% over the previous year. After deducting non-net profit, it reached 838 million yuan, an increase of 60.9% over the previous year. The company achieved excellent performance on both revenue and profit sides. In '23, the company plans to pay dividends of 1.013 yuan per share, with a dividend rate of nearly 49%. Corresponding to the current share price (5.10), the dividend rate is 2.4%. The board of directors of the company proposed keeping the high dividend ratio unchanged in '23, and the total amount of dividends continued to increase.

At the same time as the scale of revenue has expanded, profitability has increased significantly. In 2023, the company's overall revenue scale continued to expand. Revenue in China reached 49 billion yuan, up 15% year on year, overseas revenue of 27.9 billion yuan, up 12% year on year, private brand business accounted for more than 80%, and central air heat pumps increased 46% year on year; gross margins of domestic and overseas business increased by 2.41 pct and 0.77 pct, respectively, to 31.91% and 10.20%, driving the overall net interest rate to 3.31%, an increase of 1.38 pct year on year. While the revenue scale expanded, profitability also increased significantly.

Entering '24, the company achieved a gross margin of 21.63% in 24Q1, an increase of 0.51 pct. The Q1 sales/management/ financial expenses ratio decreased by 0.09/0.01/0.22pct year on year, respectively, to 10.0%/2.65%/-0.31%, respectively, and the R&D expense ratio increased 0.33 pct year on year to 3.30%. Overall cost control was good, resulting in a final net interest rate of 4.18%, an increase of 1.01 pct over the previous year.

By business, the company's overall HVAC business reached 38.65 billion yuan in 2023, up 12.04% year on year, and gross margin reached 30.66%, up 2.73 pct year on year. Under the HVAC business, the company's overall central air conditioning business achieved a 9.3% year-on-year increase in main business revenue, a 20.5% year-on-year increase in total profit, and a multi-connection market share of more than 20%, maintaining the leading position in the industry. Among them, Hisense Hitachi achieved revenue of 22.16 billion yuan, an increase of 10% over the previous year, and realized net profit of 3.243 billion yuan, an increase of 19% over the previous year. (Hisense Hitachi had revenue of 20.04 billion yuan and net profit of 2,718 billion yuan in 2012). The ice washing business achieved revenue of 26.07 billion yuan, an increase of 22.93% year on year, gross margin of 19.11%, and an increase of 1.58 pct year on year. The company's Hisense 5G+ Honor Family series of central air conditioning products helped the company's IoT multi-connection market share exceed 20%; Hitachi and York brands focus on user groups combining technology and taste. Hitachi central air conditioning is deeply involved in the field of purification and air customization tracks, and the multi-line market continues to maintain the first position in the multi-line market;

Other main business revenue was 12.24 billion yuan, up 3.81% year on year, gross margin reached 13.57%, up 0.26 pct year on year. Among them, Sandian Company continued to promote the NEV thermal management layout. In '23, the automotive air conditioning compressor and integrated thermal management segment achieved revenue of 9.05 billion yuan. Combining its own advantages with Hisense's collaborative resource advantages, Sandian Company continued to promote the transformation from a compressor-based component supplier to a supplier of integrated thermal management systems for NEVs.

The equity incentive plan is being promoted, and governance continues to be optimized to ensure unity of interest. The company announced the 2024 A-share employee stock ownership plan. The number of company executives and employees participating in this shareholding plan was no more than 279. The transfer price was 10.78 yuan/share. The total number of shares to be subscribed was about 13.92 million shares, accounting for 1% of the total share capital. The source of the shares in the employee stock ownership plan is A-shares repurchased by the company. At the same time, the company announced that it will repurchase A shares through centralized bidding on the condition that the amount does not exceed 375 million yuan and the maximum repurchase price of 27.00 yuan/share. The estimated number of shares to be repurchased will not exceed 13.916 million shares. In the shareholding plan, the company set a 24-26 performance assessment target. Based on net profit from 2022, the target growth rate for 24-26 was 122%/155%/194%, respectively, and the corresponding net profit to mother was 31.86/36.59/4.219 billion yuan. Based on net profit from 23, the corresponding year-on-year growth target for 24-26 was 12%/15%/15%.

Profit forecasting and investment advice. The company firmly promotes a global strategy and at the same time promotes the optimization of its own governance structure, with excellent performance. In the long run, the company's central aviation business is expected to maintain its leading position in the industry, driving a steady increase in overall business share, and Sandian will continue to maintain an improvement trend based on its collaborative resource advantages. We expect the company's 24-26 EPS to be 2.48/2.88/3.30 yuan respectively, up 21.1%/16.3%/14.5% year-on-year, giving the company a 24-year 16-18 xPE valuation, corresponding to a reasonable value range of 39.68-44.64 yuan “superior to the market” rating.

Risk warning. Terminal demand fell short of expectations, and raw materials and exchange rates fluctuated.