In the first half of 2023, the company achieved revenue of 10.210 billion yuan, +25.3% year on year, and net profit of 512 million yuan, +40.3% year on year. Among them, 2023Q2 achieved revenue of 5.573 billion yuan, +41.0% year-on-year, and +20.2% month-on-month; realized net profit of 313 million yuan, +85.5% year-on-year, and +56.5% month-on-month. The company's 2Q23 performance exceeded market expectations, mainly due to improved sales volume from downstream customers, improved overseas business operations, and some exchange earnings. We maintain the company's 2023/24/25 EPS forecast of 1.48/1.73/2.04 yuan, referring to the average level of PEG = 1 in the industry. Combined with the company's performance CAGR forecast of 11.4% for the next three years, we gave the company a valuation of 13xPE in 2023, corresponding to the target price of 19 yuan, and maintained a “buy” rating.

2Q23 performance exceeded market expectations, with downstream customer sales picking up. On August 23, the company released its semi-annual report for 2023. In the first half of 2023, it achieved revenue of 10.210 billion yuan, +25.3% year on year, and realized net profit of 512 million yuan, or +40.3% year on year. Among them, the second quarter of 2023 achieved revenue of 5.573 billion yuan, +41.0%, and +20.2% month-on-month; realized net profit of 144 million yuan, +33.6%, and +56.5% month-on-month. The company's performance exceeded market expectations, mainly due to revenue growth driven by a rebound in sales volume from downstream customers, improvements in overseas operations, and some exchange earnings. According to Marklines data, the company's core customer, FAW-Volkswagen, sold about 467,000 vehicles, +11% year on year, +27%; Tesla sold about 543,600 units, +94% year on year, +5% month on month; Mercedes-Benz sold about 563,300 units, +13% year on month, +8% month on month. Furthermore, the company's global layout was further optimized. 1H23's overseas business revenue reached 1,822 billion yuan, +51.7% year-on-year, and operations continued to improve. We believe that with the implementation of subsequent new energy customer projects and the further expansion of the interior and thermoforming business of new forces represented by Tesla, the company's performance is expected to rise further.

2Q23 Gross margin improved year on year, and overall operating efficiency was stable. 2Q23 The company's gross margin was 16.1%, +1.1 pcts year on year, -0.2 pct. The gross margin improved year on year. The gross margin improved year on year, mainly due to the increase in capacity utilization rate due to the release of major customers FAW/SAIC Volkswagen and Tesla; the month-on-month decline was mainly due to the fact that raw material prices were still high and labor costs were rising. 2Q23 The company's gross margin was 16.1%, +1.1 pcts year on year, and -0.2 pcts month on month. The 2Q23 company's expense ratio was 8.9%, -1.5 pcts year on year and 0.8 pct over month. Operating efficiency increased steadily. Among them, the sales expense ratio was 1.2%, year-on-year -0.4 pct, month-on-month, -0.5 pct; the management expense rate was 4.5%, -0.8 pct, +0.1 pct; the R&D expense rate was 3.6%, -0.3 pct, and -0.1 pct; and the financial expense rate was -0.3%, the same year-on-year, -0.3 pct. We believe that as prices of major raw materials such as ABS, polypropylene, and nylon fall, combined with the gradual release of overseas production capacity and the acceleration of global integration, the company's gross margin and operating level are expected to continue to improve.

New energy customers continue to expand and lay out new automotive electronics products. The company became a first-class supplier to SAIC Volkswagen in 1994, and subsequently received new orders for high-end traditional vehicles such as FAW Group, Toyota, BMW, Mercedes-Benz, and Ford. With the advent of the new energy era, the company adjusted its original customer structure. With the advantages of low cost and quick response, it has now successfully entered the supply chain of mainstream new energy vehicle companies such as Tesla, BYD, NIO, Xiaopeng, Geely, RIVIAN, and Ideal, and has full room for growth. The company entered new automotive electronics products and became a platform batch supplier of new energy high-strength steel battery case products for an international leading brand OEMs in 2022/Q3. The estimated maximum life cycle amount is about 8.1 billion yuan; the company acquired the CMS electronic rearview mirror business in early 2023 and has the first CMS management and development team in China. In addition, the company's new orders have expanded smoothly. The amount of new orders received by 2023H1 was 5.148 billion yuan (based on 2023 HIS data), a completion rate of 196% compared to the budget target, an increase of 31.38% over the same period last year. Of these, orders for new energy pure electric models accounted for 58%. Growth momentum is strong. In the future, it is expected to achieve a second growth curve in performance through continuous development of business scope and product structure diversification.

Global optimization is progressing steadily, and it is expected that profit elasticity will be fully opened up. Since 2014, Germany's Huaxiang has continuously lost large amounts of money; in 2020, the company began to vigorously restructure its European business, shut down the HSB factory in Germany and lay off employees. The related work was officially completed in 2021. At the same time, production capacity in North America has been transferred to the Mexican plant, and has now entered the batch production stage. In the future, it is expected that overseas losses will completely resolve the drag on the company's overall performance. The company's 2023H1 North American business (US, Mexico, Canada) deducted the impact of the “North American Wellhead” newly included in the consolidated statement, and achieved business revenue of 814 million yuan, +16.2%, and net profit of -44.2977 million yuan, a decrease of 88.935 million yuan over the same period last year; European (Germany, Romania) revenue was +49.3% year-on-year, and losses increased to 64.71 million yuan, mainly due to mass production of many new projects, and unstable quality during the climbing period. We expect that improving the company's North American business will be the focus of reducing losses in overseas business. The European business is expected to steadily increase profit levels as mass production of new projects climbs, the company's global business is progressing steadily, and profit flexibility in reducing losses is expected to open up room for performance growth.

Risk factors: global automobile sales fell short of expectations; the company's overseas business restructuring fell short of expectations; product development progress fell short of expectations; new products and new customer expansion fell short of expectations; raw material prices fluctuated.

Profit forecast, valuation and rating: The company is a global high-quality supplier of automotive interiors and metal parts. While supporting mainstream customers such as Tesla, Volkswagen, Mercedes-Benz, and BMW, the company is expanding to new customers such as Tesla, BYD, and NIO. Lightweight and electronic products continue to be developed, and the global layout continues to be optimized, which is expected to fully open up profit growth space. We maintain the company's 2023/24/25 EPS forecast of 1.48/1.73/2.04 yuan. Referring to the average level of PEG = 1 in the industry, combined with the company's performance CAGR forecast of 11.4% for the next three years, we The company was given a valuation of 13xPE in 2023, maintained a target price of 19 yuan, and maintained a “buy” rating.