Incident: The company released its 2023 annual report and 2024 quarterly report. The company's revenue in 2023 was 5.402 billion yuan, +29.25% year over year; net profit to mother was 397 million yuan, +31.71% year over year; after deducting non-net profit of 373 million yuan, +42.96% year over year. 24Q1's revenue was 1,662 billion yuan, +141.32% year over month, -14.67% month on month; net profit to mother was 59 million yuan, +60.46% year on month, -62.68% month on month; after deducting non-net profit of 37 million yuan, +14.69% year on year, -76.73% month on month.

Q1 Revenue doubled year-on-year, and automotive electronics continued to grow at a high rate: in 2023, the company's performance grew rapidly. By product, consumer electronics/network communication/automotive electronics/new energy/other businesses had revenue of 42.55/3.41/7.03/0.52 billion yuan, +27.59%/-42.04%/+312.13%/+6.44%/+40.10%, respectively. Thanks to the increase in consumer electronics and automotive electronics demand from downstream customers in 24Q1, the company's orders increased significantly, which led to a doubling of the company's revenue.

In 2023, the company's gross margin was 17.53%, -1.03pcts year on year; net margin was 8.08%, +0.12pct year on year. 24Q1 gross margin was 12.81%, -2.84 pcts year over month, -4.83 pcts month on month; net margin was 4.92%, +0.72 pcts year on year, -4.74 pcts month on month. Q1 Profitability declined, mainly due to the Spring Festival holiday in February, where production line utilization and personnel efficiency experienced large fluctuations. At the same time, the company's automotive electronics business is in a phase of rapid escalation. Early capital investment in R&D, management, etc. is high, causing pressure to rise in related expenses in the short term. In terms of expenses, sales/management/R&D/finance expenses in 2023 were 0.41%/5.23%/2.38%/-0.21%, respectively, -0.06/-0.85/-0.24/-0.68pct.

Demand for consumer electronics recovered, and the company actively expanded production to help growth: According to IDC data, the Chinese smartphone market shipped about 69.26 million units in 24Q1, up 6.5% year on year, continuing the rebound trend at the end of last year, and the market performance was higher than expected. Among them, Huawei and Honor tied for the first place in the domestic market share, and mobile phone shipments increased 110% and 13.2% year-on-year respectively. We believe that benefiting from the continued recovery in industry demand, the company's consumer electronics business is expected to grow rapidly as shipments from leading domestic customers continue to grow. At present, the company's capacity utilization rate is at a high level, and the overall operating rate of each park has reached 90%. As demand for various orders, including mobile phones, grows, the company is stepping up production capacity investment at various bases at home and abroad to meet customer needs. The production capacity of Huizhou Phase II and Phase III manufacturing bases has been fully completed, and construction of the Shenzhen Pingshan base has been stepped up. It is expected that it can be gradually put into use starting in 2025.

Automotive electronics are making great strides, and customer orders continue to grow: In 2023, the company's automotive electronics business increased by 312.13% year on year, making it another pillar field for the company after consumer electronics. With the rapid development of the automotive electronics market, the company's share of automotive electronics is also increasing. The company expects automotive electronics to account for 40%-50% of revenue in the next 5 years. In the field of automotive electronics, the company has successfully entered the supply chain system of well-known auto parts suppliers Valeo, Mainland China, and Nippon Denso to provide customers with various automotive electronic components such as sensors, car driving data recording systems, smart cockpit hardware, power management systems, etc., which are widely used in dozens of well-known domestic and foreign automobile brands and popular models of many new energy vehicle brands, including Mercedes-Benz, BMW, Audi, Volkswagen, Tesla, Toyota, Geely, and BAIC. The company also has deep cooperation with Huawei and Xiaomi in the automotive electronics business. In May, Hongmeng Zhixing (QJie+Zhijie) delivered 30,578 new vehicles, an increase of 3.19% over the previous year. According to Xiaomi's 24Q1 earnings report, as of May 15, 2024, the total number of new Xiaomi SU7 series vehicles delivered reached 10,000. The company provides manufacturing services for various automotive electronics-related products for many well-known customers in the automotive sector. With the development of intelligent driving technology in recent years, the categories and quantity of smart driving-related products produced by the company are also constantly improving, and are widely used in the best-selling models of many new energy vehicle brands. We are optimistic that the company's automotive electronics business will fully benefit from the continued high sales growth of new domestic car builders such as Huawei and Xiaomi, and is expected to continue to grow rapidly.

Maintaining the “gain” rating: Industry demand continues to recover, and the consumer electronics boom continues to rise. We are optimistic that the company's consumer electronics business will benefit from increased sales of domestic mobile phones such as Huawei, Honor, and OV Mi, and shipments are expected to continue to grow at a high rate. Production lines are running at full capacity, and production capacity at domestic and foreign production bases is being released in an orderly manner. Second growth curve The automotive electronics business continues to grow rapidly, which is expected to drive steady growth in the company's performance. The estimated net profit of the company from 2024 to 2026 was 524 million yuan, 665 million yuan, and 825 million yuan, EPS was 0.68 yuan, 0.87 yuan, and 1.08 yuan respectively, and the corresponding PE was 31X, 24X, and 20X respectively.

Risk warning: the risk of fluctuations in the international political and economic situation, downstream demand falling short of expectations, new business expansion falling short of expectations, and the risk of rising labor costs.