Incident: The company released the 2023 annual report and the 2024 quarterly report. In 2023, it achieved operating income of 1,917 million yuan, a year-on-year decrease of 2.86%; realized net profit of 133 million yuan, a year-on-year decrease of 25.35%; realized net profit of 103 million yuan, a year-on-year decrease of 38.11%; achieved revenue of 451 million yuan in the first quarter of 2024, an increase of 8.05%; realized net profit of 0.31 million yuan, a year-on-year increase of 40.07%; realized net profit without return to mother of 30 million yuan, year-on-year decrease of 25.35%; realized net profit without return to mother An increase of 807.11%.

The automotive electronics business grew rapidly, and demand picked up in 24Q1, and the performance recovered significantly:

In 2023, the company achieved revenue of 1.917 billion yuan (YoY -2.86%), of which orders from old customers in the automotive business and NEV customers all increased, achieving rapid growth, reaching 413 million yuan (yoy +73.90%), accounting for 21.55% of revenue (yoy+9.51pct); communication/consumption/industrial control/medical business revenue was 2.64/1.04/776/312 million yuan, respectively (yoy +10.54%/+1.68%/-12.18%/-28.84 %), accounting for 13.77%/5.42%/44.80%/16.29% of revenue (yoy+1.67pct/+0.24pct/+0.00pct/-5.95pct), respectively. Although sales of communications/consumer products declined year over year, demand for high unit price products increased, so revenue continued to grow. Due to factors such as rising production capacity in overseas factories, depreciation of new phase II plants, amortization of various software projects, and overseas business expansion, net profit for the whole year fell to 133 million yuan (yoy -25.35%), gross profit margin 22.01% (yoy-1.04pct), and net profit margin 7.18% (yoy-2.14pct). In 24Q1, some customers gradually ended inventory removal and demand increased, and the company continued to reduce costs and increase efficiency. The company achieved revenue of 451 million yuan (yoy +8.05%, qoq -18.52%) in a single quarter, achieving net profit of 31 million yuan (yoy +40.07%, qoq +3.79%), gross profit margin of 23.97% (yoy+1.34pct, qoq+4.75pct), and a net profit margin of 7.07% (yoy+1.45pct, qoq+1.53pct).

R&D investment has been maintained at a high level, and refined management has been further improved:

In 2023/24Q1, the company's R&D expenses were 1.16/026 million yuan (yoy +10.37%/-11.23%), and the R&D expenses rate was 6.04%/5.71% (YOY+0.73pct/-1.24pct), respectively. According to the company's annual report, the company currently has more than 300 customers, involving more than 6,000 products (more than 5,000 in the same period in 2022) and more than 60,000 major raw materials. The company's process transformation continues to be implemented, including the launch of SAP, the introduction of a series of management systems such as the EWM automated warehouse management system, CRM system, and QTS system, forming an information-based management system that conforms to the company's “high-quality, multi-variety, fast, and flexible EMS” business model. The company has been strengthened in refined management such as sales orders, work orders, purchase order management, logistics automation, etc., and the industry's competitiveness has been further enhanced.

The global layout continues to advance, and domestic and overseas production lines are being put into use one after another:

1) Domestic: The first phase of the Suzhou Phase II plant was officially put into operation in early '23. An intelligent logistics system was built in accordance with German Industry 4.0 standards to further reduce costs and increase efficiency. 2) Overseas: The company has three manufacturing bases in Mexico, Vietnam and Romania. The Mexican subsidiary is included in 3 production lines, 2 of which have entered mass production; the Vietnamese subsidiary plans to invest in 5 production lines, 4 of which have already been completed and put into operation; the Romanian subsidiary registration is completed in 2023, and it is planned to invest in 4 production lines, 1 of which has already been completed and sampled, and will enter mass production of products in 2024. In addition, the company has established investment and operating companies in Hong Kong and Singapore, and plans to establish local marketing teams in Europe and the US in 2024.

Investment advice:

We expect the company's revenue for 2024-2026 to be 2,224 billion yuan, 2,663 billion yuan, and 3.160 billion yuan, respectively, and net profit to mother of 232 million yuan, 277 million yuan, and 331 million yuan respectively, giving the company 17 times PE in 2024, corresponding to a target price of 24.53 yuan, maintaining a “buy-A” investment rating.

Risk warning: downstream demand falls short of expectations; risk of raw material price fluctuations; risk of exchange rate fluctuations; business development falls short of expectations.