Incident: The company publishes an annual report and a quarterly report. In '23, it achieved revenue of $3.106 billion (-2.95%), net profit to mother of $138 million (-6.49%), and net profit of non-return to mother of $123 million (+29.07%). The 24Q1 quarter achieved revenue of 773 million yuan (-4.60%), net profit to mother of 38 million yuan (-5.84%), and net profit of non-return to mother of 34 million yuan (+14.28%) in a single quarter.

Short-term pressure on 23-year results. Revenue for 23 years by product: bearing products of 1,789 million yuan (-5.12%); auto parts revenue of 430 million yuan (+9.29%); thermal management system components of 827 million yuan (-1.26%). Among them, revenue from finished bearing products maintained a good growth trend; revenue for automotive safety parts maintained rapid growth; bearing rings began to improve in the fourth quarter of 2023; wind power roller revenue fell short of expectations due to downstream inventory removal, insufficient demand, and increased competition.

Profitability improved in 24Q1. The company's comprehensive gross margin for the full year of '23 was 17.5%, -0.2 pct year on year, and the net sales margin was 4.6%, -0.3 pct year on year. The four-year rate was 11.2%, a year-on-year change of -0.7pct. The consolidated gross margin for the 24Q1 quarter was 16.3%, a year-on-year change of +0.1pct; the net sales margin was 4.9%, year-on-year change -0.1 pct, and a month-on-month change of +2.2 pct. The four-quarter rate for 24Q1 was 11.0%, a year-on-year change of -0.5pct.

Common underlying technology leader before bearing grinding, big industry enabler starts a growth cycle. 1) Automobile bearing products: The company is actively developing the aftermarket for third-generation passenger car wheel bearing units, and the fully automatic assembly line has been successfully commissioned and targeted for new projects by well-known domestic OEMs. At the same time, the company is also actively promoting the development of automotive aftermarket marketing channels. 2) Screws: The company has successfully developed components and components such as ball screws and planetary roller screws. At present, the company has independent design and forward development capabilities based on customer needs; it has the ability to develop forgings, machining, heat treatment, hard turning and various types of grinding, assembly and testing. The company has successfully developed trapezoidal screw components and sent samples to key customers. The company has also successfully developed ball screw products in the fields of electronic parking (EPB), electromechanical braking (EMB) and electrohydraulic braking systems (EHB) for new energy vehicles. In 23 years, the company has completed the design and continuous sample delivery improvement of planetary roller screw product components and components. 3) Robot bearings: including customized deep groove ball bearings, four-point contact ball bearings, angular contact ball bearings and needle roller bearings; high-load, high-precision tapered roller bearings, flexible thin-walled bearings, and cross roller bearings. The company has successfully developed a full range of robot bearing products, supporting robot reducer companies such as Nangao Gear, Newstar Dart, ZD Harmonics, and Raffle Harmonics. 4) Thermal management: The company has successfully developed new products such as thermal management system hoses, system tubes, automotive refrigerant flow boards, and electric vehicle thermal management system integrated module valve terminal assemblies, and has gradually completed the transformation and upgrading from thermal management system components to system integration.

According to the annual report, we lowered the revenue and gross profit margin by product, and predicted that the company's net profit for 24-25 would be 1.88 million yuan and 234 million yuan (previous values were 261 million yuan and 359 million yuan), respectively, adding a 26-year forecast of 261 million yuan. Using a relative valuation method, we referred to the 24-year average of 36 times PE, and the corresponding target price was 18.36 yuan, maintaining the “buy” rating.

Risk warning: progress in new field expansion falls short of expectations; automobile demand falls short of expectations; wind power installed capacity falls short of expectations; risk of asset impairment; demand from major customers falls short of expectations; new customer expansion and new product development fall short of expectations; risk of rising raw material prices.