Incident: The company released its 2023 annual report and 2024 quarterly report. The company achieved operating income of 3,663 billion yuan in 2023, an increase of 35.39% over the previous year; realized net profit of 911 million yuan, an increase of 11.36% over the previous year; and realized deducted non-net profit of 886 million yuan, an increase of 16.25% over the previous year. In 2024, Q1 achieved operating income of 805 million yuan, up 3.17% year on year and 22.89% month on month; realized net profit of 163 million yuan, down 21.14% year on year and 35.32% month on month; realized deducted non-net profit of 162 million yuan, down 18.59% year on year and 36.72% month on month.

Results grew steadily in '23, and overall performance declined in Q1 in '24: The company's performance achieved steady growth in 2023. The main reason was that the company's market share continued to expand, and revenue from various downstream industries continued to grow. At the same time, the company's gross margin in 2023 was 37.51%, -2.79pct year on year, mainly due to the increase in the cost of some raw materials; the company's net profit margin was 25.14%, -5.20pcts year on year. The net interest rate decline was large compared to the gross margin decline, mainly due to the increase in the cost ratio during the whole year. In terms of expenses, throughout 2023, the company's sales, management, R&D and financial expenses rates were 1.04%/2.20%/7.85%/-1.90%, respectively, with year-on-year changes of -0.11/-0.43/+0.87/+1.86pct, respectively. Among them, the financial expense ratio and absolute value both showed year-on-year increases in 2023, mainly due to a decrease in the company's interest income. The company's performance declined in Q1 in '24. In terms of profitability, the company's gross margin in Q1 was 31.78%, -4.65 pcts year on year, -8.69 pcts month on month; net margin was 20.52%, -6.17 pcts year on year, and -3.92 pcts month on month. However, fueled by the rapid development of the NEV industry, the market demand for power devices, such as IGBT and SiC, is increasing. The company's vehicle regulation business is expected to achieve steady growth, and the company's profitability is also expected to be restored.

Automotive-grade SiC MOSFETs have been launched on a large scale, and overseas market expansion is progressing smoothly: According to FortuneBusiness 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 about 17.80%. Benefiting from the continuous expansion of the NEV market, the company's vehicle regulation products have broad market prospects. In 2023, the company's automotive-grade SiC MOSFET chips passed vehicle certification by many customers and began batch shipment; the company's automotive-grade SiC MOSFET modules were also used in large quantities in vehicles; the company also added several targets for 800V system main motor controller projects using automotive-grade SiC MOSFET modules, and the sales scale of the company's automotive-grade SiC MOSFET modules is expected to expand further. At the same time, the company has made significant progress in the overseas NEV market. Among them, the company has begun mass delivery of automotive-grade IGBT modules in the European first-tier brand Tier 1; the company has added a number of IGBT/SiC MOSFET main motor controller projects.

The automotive optical storage business is improving, and IGBT modules continue to be released: in 2023, the company continued to release more than 2 million sets of NEV main motor controllers; the company's 750V automotive-grade IGBT modules based on seventh-generation micro-groove Trench Field Stop technology were also used in large quantities in vehicles, and the company's market share in new energy vehicle applications such as vehicle air conditioning, charging piles and electronic power steering was further increased. At the same time, the company's 1200V vehicle-grade IGBT module based on seventh-generation micro-groove Trench Field Stop technology has added a number of main motor controller project targets for 800V system models. These fixed points are expected to provide a continuous impetus for the company's NEV IGBT module sales growth. In addition, the company's 1200V 650V high-current single tubes have been used in large quantities in industrial and commercial photovoltaics and energy storage; the company's IGBT modules based on seventh-generation micro-groove Trench Field Stop technology have also been applied in batches to ground-based photovoltaic power plants and large-scale energy storage, and have been installed in batches in overseas power plants such as North America.

Lowering profit forecasts and maintaining the “gain” rating: The company is mainly engaged in the design, development, production and sales of IGBT and SiC power semiconductor chips and modules. The company's products are widely used in industrial control and power supplies, new energy, new energy vehicles, white goods, etc. In 2023, the company continued to release a variety of vehicle standard products, the company's NEV market share continued to increase, and overseas business also made great progress. In recent years, application fields such as new energy vehicles, new energy, and industrial control have been booming, and the company's vehicle regulation business is expected to benefit from strong and steady growth in demand for power devices such as SiC and IGBT. Considering that demand recovery in the semiconductor market fell short of expectations, we lowered our profit forecast. We expect the company's net profit for 2024-2026 to be 1,142 billion yuan, 1,399 billion yuan, and 1,716 billion yuan respectively, EPS 4.77, 5.85, 7.17 yuan/share, and PE 18X, 15X, and 12X respectively.

Risk warning: the risk of macroeconomic fluctuations; the risk of fluctuations in the NEV market; the risk of exchange rate fluctuations; the risk of increased competition in the industry.