Raise the profit forecast for 2023-2024 based on a more optimistic gross margin forecast; maintain the "buy" rating and maintain the target price of HK $38.00. Based on a more optimistic estimate of the company's gross profit margin, we raised our profit forecasts for 2023 and 2024 by 18.5% and 17.6% respectively to RMB 2.129 billion and RMB 4.086 billion, respectively. We added RMB 6.554 billion to our profit forecast for 2025. The earnings growth we forecast during the forecast period mainly reflects our expectations for strong sales growth, which is enabled by the company's expansion plans up to 2025. We keep our target price unchanged at HK $38.00 (based on 29 times 2023 p / e).

We are optimistic about the future gross profit margin of China Chuangxin Airlines: although the company's gross profit margin is uncertain under the pressure of electric car manufacturers to cut costs, we still have confidence in the company's future gross profit margin based on the following points: 1) due to the capacity expansion of the company, the management expects that sales will reach 80 gigawatt hours in 2023, and the company's economies of scale will be significantly improved. 2) High-end electric car manufacturers have diversified procurement needs, and the company is expected to expand its high-end market share. 3) the proportion of battery packs with higher gross margins (relative to cells and modules) in the sales structure is expected to increase with a new round of upgrade of the company's product portfolio, and 4) the company's cost optimization efforts will continue to be reflected, such as the use of "OS battery" technology to improve production efficiency. For the above reasons, we expect the company's gross margin to further expand to 11.3%, 11.9%, 12.5% in 2023, 2024, 2025, respectively; in the medium term, we believe the company has a good chance of raising its gross margin to more than 15%.

Forecast for the first half of 2023: according to data from the China Automotive Power Battery Industry Innovation Alliance (CABIA), in the first half of 2023, the installed capacity of Xinhang Power batteries was 12.56 gigawatt hours, an increase of 39.6% year on year, accounting for 8.26% of the market share. After the off-season in the first quarter of 2023, we believe that the company's sales have begun to accelerate-according to CABIA, the power battery installed in June 2023 reached 2.9 gigawatt hours, a new high for the company in a single month. At present, the company's management is still confident about the sales target of 80 gigawatt hours in 2023, of which electric vehicles and ESS batteries account for 50 gigawatt hours and 20 gigawatt hours respectively.

Main risks: delayed capacity expansion, unexpected rise in raw material costs, lower-than-expected sales of electric vehicles, related risks caused by excessive customer concentration, and so on.

Handover coverage: we will transfer the coverage of China New Airlines (03931 HK) from Zhu Junjie to Shao Junxi.