The company released its 2023 annual report, and operating income and net profit grew steadily. Among them, the automotive electronics business grew rapidly, accounting for more than 50% of revenue, and became the main source of revenue. The company developed a number of new products in 2023, covering a variety of automotive electronic modules, gearboxes, high-torque DC motors, etc. The 2024 revenue is expected to benefit from the growth of Vision Pro IPD modules and the automotive electronics business and maintain an increase rating.

Key points to support ratings

Revenue and net profit to mother grew steadily in 2023, and gross margin declined slightly. The company's revenue in 2023 was 1.06 billion yuan, +4.64% year on year; net profit to mother was 180 million yuan, +19.55% year on year; net profit after deducting non-return to mother was 133 million yuan, +4.50% year on year; gross profit margin 29.05%, -0.71 pct year on year. 23Q4 revenue was 392 million yuan, +5.56% year over year; net profit to mother was 52 million yuan, +8.03% year over year; net profit after deducting non-return to mother was 47 million yuan, +7.07% year on year; gross profit margin 29.55%, -2.48 pcts year on year, -0.49 pcts month on month.

The company's revenue and profit growth was mainly due to increased sales of transmission gears and micro drive products in the NEV business.

The automotive electronics business grew rapidly, contributing more than half of the revenue. Looking at the downstream sector, in 2023, the company achieved revenue of 633 million yuan, up 33.54% year on year, accounting for 52.49% of revenue; achieved revenue of 282 million yuan in the smart consumption sector, up 1.81% year on year, accounting for 23.35% of revenue; achieved revenue of 123 million yuan in the communications business sector, down 26.79% year on year, accounting for 10.18% of revenue; achieved revenue of 49 million yuan in the medical and personal care sector, down 39.51% year on year, accounting for revenue ratio of 39.51% 4.03%; achieved revenue of 120 million yuan in other fields, down 21.05% year on year, accounting for 9.95% of revenue.

There are many highlights of the new product development results. In terms of industry solutions: Launch solutions for automotive ceiling screens, deflection screens, and rotating screens to solve the problems of small space, low noise and high reliability requirements for human-computer interaction products; launch electric spoilers to improve the driving stability of cars at high speeds. Standardized product aspects: The development of spur gearboxes went smoothly, forming a product series with an outer diameter of 16mm-37mm, completing the development of high-torque DC motors, brushless DC motors, miniature brushless hollow cup motors, and permanent magnet synchronous motors, and automated mass production of 8mm permanent magnet stepper motors. Basic research aspects: Research on precision manufacturing technology for high-performance PEEK plastic gears has been completed. Research on PEEK balance shaft series products has led to successful mass production of high-torque and low-noise transmission gears.

The XR business and automotive electronics provide growth drivers in 2024. The company is the exclusive supplier of Vision Pro IPD modules, with a stand-alone value of 150 yuan. With the official launch of Vision Pro in February 2024, it will drive the company's continuous revenue growth. In terms of automotive electronics, the company has customers such as Huawei, BYD, and Great Wall, and has launched innovative solutions such as ceiling screens, deflection screens, rotating screens, and car tails, some of which have already entered the mass production stage, and are expected to land revenue in 2024, providing growth impetus.

valuations

Since 2024, domestic car companies such as BYD and Wenjie have begun a wave of price cuts. We believe it will have a negative impact on the company's automobile business and lower the company's profit forecast. The company is expected to achieve earnings of 1.29 yuan/1.68 yuan/2.26 yuan per share in 2024-2026, corresponding price-earnings ratio of 47.8 times/36.7 times/27.3 times. Due to the company's exclusive position in Vision Pro IPD modules, the automotive electronics business can still maintain a relatively rapid growth rate and maintain an increase in holdings rating.

The main risks faced by ratings

The risk of macroeconomic fluctuations; the risk of rising labor costs; the risk of increased competition in the automobile industry; the risk of fluctuations in raw material prices; and the risk of developing new products and technologies.