Incident: The company released its 2023 annual report and 2024 quarterly report. In 2023, the company achieved operating income of 4.221 billion yuan, an increase of 8.97% over the previous year; realized net profit of 173 million yuan, a year-on-year decrease of 46.99%; and realized deduction of 150 million yuan in non-net profit, an increase of 149.95% over the previous year. In 2024, Q1 achieved operating income of 1,058 billion yuan, up 13.28% year on year and 7.82% month on month; realized net profit of 73 million yuan, up 25.05% year on year, up 17.59% month on month; realized deducted non-net profit of 73 million yuan, up 91.06% year on year and 8.78% month on month.

There was a slight increase in revenue in 23, and rapid year-on-year growth in Q1: The company's revenue increased slightly in 2023, mainly due to a slow recovery in market demand and a sharp increase in production and sales of the company's main products. In terms of profitability, the company's gross margin in 2023 was 14.35%, -3.62 pcts year on year; the company's net profit margin was 4.29%, -4.47pcts year on year. The net interest rate decline was large compared to gross margin, mainly due to a sharp decline in investment income. In terms of expenses, throughout 2023, the company's sales, management, R&D and financial expenses rates were 2.23%/6.98%/4.57%/-3.28%, respectively, with year-on-year changes of +0.24/-0.52/-1.24/+0.03pct, respectively. Among them, there was a year-on-year increase in the sales expense ratio and amount in 2023, mainly due to the year-on-year increase in the company's sales revenue, corresponding to the increase in sales expenses. In Q1 '24, the company's performance achieved rapid year-on-year growth. The main reason was the gradual recovery of consumer sentiment in the downstream terminal market, and sales of the company's main products MLCC, chip resistors, and inductors increased dramatically. Meanwhile, in Q1, the company's gross margin was 16.79%, +5.71 pcts year on year; the net margin was 6.90%, +0.35 pcts year on year, and the company's profitability is gradually recovering.

5G uses MLCC to achieve sales, and multiple fund-raising projects are progressing steadily: in H1 in 2023, the company's 12 types of high-end MLCC products entered the production and delivery stage. Among them, 5 types of products were delivered in small batches; the company completed research and development of copper electrode paste for thick film resistors, which is the first in China, and the product was delivered in small batches. At the same time, the company has developed a variety of MLCC products for 5G, which have been sold to customers. In March 2024, the company's “technical improvement and production expansion project with a monthly output of 28 billion chip resistors” met the design capacity planning requirements; the first phase of the “Xianghe Industrial Park High-end Capacitor Base Construction Project” has reached production, and part of the production capacity has been released and delivered to customers in batches; at the same time, the company's “technical improvement and production expansion project with a monthly output of 100 million integrated inductors” and the “technical improvement and production expansion project with a monthly output of 4 billion multilayer inductors” is progressing in an orderly manner. As of March 2024, the company's production capacity for integrated inductor molding products was progressing in an orderly manner. Release.

The NEV market is growing rapidly, and in-vehicle customer cooperation continues to be deepened: According to Fortune Business Insights, the global electric vehicle market is expected to grow to US$1579.1 billion in 2030, and the global electric vehicle market CAGR is approximately 17.80% in 2023-2030. Benefiting from the continuous expansion of the NEV market, the company has a broad market space for vehicle regulation products. In 2023, the company's products were applied to Huawei car terminals; the company introduced a series of products such as resistance sensing into BYD terminal models and achieved batch delivery. At the same time, the company has built a dedicated line of vehicle regulation products and launched more than 30 vehicle grade passive component product lines; the company's vehicle specification products have been widely used in various scenarios such as body control, automobile power supplies and motors, and smart cockpits; the company has reached long-term cooperative relationships with many domestic and foreign vehicle brands and Tier 1/Tier 2 manufacturers. In addition, the application of the company's vehicle regulation products in vehicles has advanced from vehicle peripherals to key vehicle body systems such as electric drives, BMS, OBC, and electronic control. The company's vehicle specifications have been increasing one after another, the vehicle specification delivery capacity continues to improve, and the customer base of downstream automakers and tier 1 manufacturers is gradually enriching.

Lower profit forecast and maintain “gain” rating: The company is mainly engaged in the development, production and sales of electronic components and electronic materials. The company's main products include MLCC, chip resistors, inductors, ceramic filters, pressure sensitive resistors, thermistors, aluminum electrolytic capacitors, wafer capacitors, supercapacitors, etc. The company's products are widely used in automotive electronics, industrial and control automation, consumer electronics, communications, PC, Internet of Things, new energy, medical and other fields. In 2023, the company achieved batch supply of various resistance sensing products to customers, and the company's production capacity project is progressing steadily. Benefiting from the booming development of emerging strategic industries such as 5G communications, new energy vehicles, the Internet of Things, and new mobile smart terminals, the market demand for electronic component products is expected to rise steadily, and the company's profitability is also expected to improve. Considering that the recovery in consumer terminal demand downstream of the company's resistive products fell short of expectations, we lowered our profit forecast. We estimate that the company's net profit for 2024-2026 will be 392 million yuan, 526 million yuan and 776 million yuan, EPS 0.34, 0.45, and 0.67 yuan/share, respectively, and PE is 37X, 28X, and 19X respectively.

Risk warning: Risk of rising supply chain costs, risk of market demand falling short of expectations, risk of technological breakthroughs falling short of expectations, increased risk of market competition.