Introduction to this report:

Performance is in line with expectations, and profitability has rebounded markedly; the company's white power and auto parts businesses are expected to fully benefit from the trade-in of consumer goods; based on the white power business, it is planned to expand Auto Zero's second growth pole.

Key points of investment:

Investment advice: Considering changes in preferential policies for electricity prices, reduce the 24-25 EPS to 1.05/1.33 yuan (previous value was 1.09/1.37 yuan), and add the 26-year EPS to 1.53 yuan. Referring to comparable company valuations, the company was given 16 XPE for 24 years. The target price was raised to 16.8 yuan (previous value: 14.56 yuan) to maintain the increase in holdings.

Performance was in line with expectations, and profitability rebounded markedly. In 2023, the company achieved revenue of 3.244 billion yuan/ +1.17%, net profit of 389 million yuan/ +47.66%; deducted from non-return mother 343 million yuan/ +59.61%. Single Q4 achieved revenue of 9.1 million yuan/YoY +25% /11.27% month-on-month, net profit to mother of 108 million yuan/YoY +704.91% /month-on-month +2.40%; deducted from mother of 94 million yuan/month-on-month +1.04%. 2023 gross profit margin 23.94% /+5.13pct, net profit margin 11.17% /+4.99pct; sales/management/R&D/finance expense ratios were 0.96%/4.07%/4.35%/1.85%, respectively, +0.19/-0.62/+1.14/+0.6pct.

Consumer goods trade-in is progressing steadily, and the company's white power and auto parts businesses are expected to fully benefit. On April 12, 14 departments including the Ministry of Commerce issued the “Action Plan to Promote Trade-In of Consumer Goods”, which aims to promote the trade-in of automobiles and home appliances through various means such as financial subsidies. Key provinces and leading home appliance companies such as Jiangsu, Zhejiang, Shanghai, and Guangdong have responded to the plan and introduced relevant subsidies to stimulate demand for terminals. With the gradual implementation of the subsidy policy, it is expected to stimulate sales of home appliances and automobiles, thereby providing a strong boost to the company's white electricity and auto parts business.

Based on the Baidian business, it is planned to expand Auto Zero's second growth pole. In the white power sector, the company expanded washing machines and increased the proportion of machining to consolidate its existing advantages. In the construction machinery sector, the company is stepping up market development efforts to improve capacity utilization. In the auto parts sector, the company is currently small in size and has plenty of room for growth. In the future, it is expected that Auto Zero will become the second growth pole through internal production expansion or epitaxial mergers and acquisitions.

Risk warning: Policy implementation falls short of expectations, and air conditioning schedules and expansion in new fields fall short of expectations.