An overview of the incident. The company disclosed a pre-increase in its 2023 results announcement. The company expects to achieve net profit attributable to shareholders of listed companies of 960 million yuan to 1.06 billion yuan in 2023, an increase of 36.9% to 51.1% over the previous year.

Of this amount, it is not about $36 million, mainly government subsidies. It is estimated that in 2023, deducted non-net profit attributable to shareholders of listed companies will be 920 million yuan to 1.02 billion yuan, an increase of 16.0% to 28.5% over the previous year.

The results for the single quarter increased year over year and declined slightly from month to month. Based on the median performance forecast, the company is expected to achieve net profit of 208 million yuan in the 2023Q4 single quarter, +58.9% year on year, and -16.7% month on month; deducted non-net profit of 206 million yuan, +103.3% year on month, and -16.6% month on month. The company's performance for the full year of 2023 is expected to grow rapidly. The main reasons are: 1) sales side: rapid growth in the company's two-wheeler exports and four-wheel product structure upgrade (increase in U/Z series share) jointly drive profits; 2) exchange rate side: due to the appreciation of the US dollar against RMB exchange rate throughout the year, exchange benefits increase annual profits; 3) shipping cost side: the average value of the core indicator CCFI Composite Index 2022/2023 was 2792/945, respectively, which led to a significant decline in the company's profits. The company's 2023Q4 profit declined slightly month-on-month. We judge that the main reasons are: 1) the domestic two-wheeler market is in the off-season, and domestic sales are under seasonal pressure; 2) the company's North American all-terrain vehicle business is currently in the de-inventory stage, causing phased pressure on wholesale sales.

Motorcycles: The long-term logic of the Chinese and large fleet will not change the export process to speed up 1) Steady growth in domestic sales: According to data from the China Motorcycle Chamber of Commerce, the company's domestic motorcycle sales volume in 2023 was about 89,000 units, +8.8% year over year; of these, models above 250cc sold 39,000 units, +54% year over year, and the proportion of large displacement continued to increase. In terms of products, the company's product matrix was gradually improved, and the 450NK was released in July 23; the first cruiser, the 450CL-C, was launched in August, and new products such as the 675SR, 500SR, and 450MT will be launched in 2024. It is recommended to focus on boosting subsequent sales and improving the product structure.

2) The export process is speeding up: According to data from the China Motorcycle Chamber of Commerce, the company's motorcycle export sales volume in 2023 was about 75,000 units, +63.4% over the same period last year. The vast majority of models were 250cc (inclusive) and above. The company's two rounds of business accelerated expansion into overseas markets, opening a new growth pole.

All-terrain vehicles: Sales are relatively steady throughout the year, and the product structure continues to be optimized. The US is the world's largest all-terrain vehicle market. In recent years, the company has concentrated resources to develop the US market. According to data from the China Motorcycle Chamber of Commerce, the company exported 136,000 all-terrain vehicles in 2023, -12.7%. The company's all-terrain vehicle product structure continued to be optimized, and the sales share of high-value-added products increased steadily. Optimistic about the medium to long term, the company is expected to expand its product line (U/Z series) and continue to increase its market share due to cost performance advantages.

Investment advice: Long-term optimism about the sales boosting effect brought about by the company's strong brand power+matrix expansion, as well as the cost-effective advantages, channel advantages and structural improvements in the all-terrain vehicle business. We expect the company's 2023-2025 revenue of 119.5/150.2/18.55 billion yuan, net profit to mother of 10.06/12.68/1.03 billion yuan, and EPS of 6.68/8.43/10.66 yuan. Corresponding to the closing price of 85.33 yuan/share on January 30, 2024, PE was 13/10/8 times, respectively, and covered for the first time to give a “recommended” rating.

Risk warning: competition in the domestic market intensifies; four rounds of overseas demand fall short of expectations; exchange rate fluctuations, etc.