ZONGSHEN POWER(001696) 西南证券·2024-05-07 05:00Investment Rating - Buy (First Coverage) with a target price of 14.30 yuan (6 months) [1] Core Views - The company reported Q1 2024 revenue of 2.33 billion yuan, up 8.97% YoY, and net profit attributable to shareholders of 120 million yuan, up 8.00% YoY [2] - The company's refined management has shown results, with a significant decrease in the period expense ratio [2] - The company is riding the wave of the low-altitude economy, and its aviation engine business is expected to become a second growth curve [4] - The company is actively expanding into the new energy sector, covering power systems, energy storage, and hydrogen energy [9] Business Performance - Q1 2024 gross margin was 13.5%, down 0.6 percentage points YoY, while net margin was 5.6%, up 0.1 percentage points YoY [2] - The period expense ratio for Q1 2024 was 7.75%, down 1.15 percentage points YoY, with sales, management, R&D, and financial expense ratios decreasing [2] - The company's aviation engine subsidiary has developed a product line of 200HP and below, with over 20 derivative products and propellers [4] - The company's new energy products cover power systems, energy storage, and hydrogen fuel cell systems [9] Financial Forecasts - The company is expected to achieve net profits of 630 million, 720 million, and 820 million yuan for 2024-2026, with EPS of 0.55, 0.62, and 0.71 yuan, respectively [9] - The company's PE ratios for 2024-2026 are expected to be 21x, 19x, and 16x, with a three-year net profit CAGR of 31.2% [9] - The target price of 14.3 yuan is based on a 2024 PE of 26x [9] Business Segments - The company's general machinery segment has become its largest business, accounting for 47.3% of revenue in 2023 [27] - The engine segment saw revenue growth of 19.0% in 2023, driven by increased production efficiency [62] - The company's aviation engine segment has built five product platforms, covering over 20 end products for military and civilian drones and light aircraft [34] Historical Performance - From 2016 to 2023, the company's revenue grew from 4.69 billion yuan to 8.15 billion yuan, with a CAGR of 8.2% [30] - The company's net profit attributable to shareholders in 2023 was 360 million yuan, down 7.3% YoY, mainly due to increased R&D and financial expenses [30] - The company's gross margin in 2023 was 14.6%, up 1.8 percentage points YoY, driven by lower raw material costs [36]