Impressive 618 with makeup brand making its debut to TOP 1; Maintain BUY

珀莱雅(603605)
    Proya reported impressive results during the 618 promotion event with totalGMV ranking top/second on Tmall/Douyin’s cosmetic sector, buoyed byeffective hero product strategy and possibly more discounts. GMV growthreached +70%/+110% YoY on Tmall/Douyin, largely surpassing the platforms’sector total and international peers. Growth might be lower at the revenue levelas the return rate is raising industrywide. Proya makeup/hair care brands’ranking climbed to the top/top 10 on Tmall for the first time, suggesting newbrand development is proceeding well. We raise our 2024E/25E earningsestimates by c.20% to reflect success in 618 and solid 4Q23/1Q24 earnings.Maintain BUY with TP revised to RMB135.57, reflecting 35x 2024E P/E.
    Impressive 618: retained throne on Tmall, ranked 2nd on Douyin.Based on data from third-party statistics, during the 618 shopping festival,Proya’s GMV maintained its champion status on Tmall and ranked secondon Douyin in cosmetic sector (behind Kans), surpassing all internationalpeers (Figure 1). YoY growth reached +70% and +110%, respectively,significantly outperforming the cosmetics GMV growth on platforms (-13.3% for Tmall+JD+PDD, +47.6% for Douyin) (Figure 2-3). The successis primarily due to: 1) effectiveness of the hero product strategy. Mainskincare brand ranked the first/second by GMV on Tmall/Douyin,respectively. 2) Possibly more discounts were offered as our preliminaryestimates indicate that Proya offered 7% more discount during 618compared to Double 11 2023 on Li Jiaqi's live broadcast event (Figure 4).
    Makeup made its debut to the top, hair care entered top 10. During618, GMV of Timage on Tmall's makeup ranking reached the top for thefirst time (ranked the 7th/2nd during 2023’s 618 and 2023’s Double 11),with 80% YoY growth in GMV on Tmall, significantly outpacing theindustry's -14.2% (Tmall+JD+PDD). The company's makeup GMV on theDouyin platform remained flat YoY, possibly due to a strategic decision toforgo platforms with intense competition and higher cost. Hair care brand,Off&Relex (OR), made a notable entry into the top 10 of Tmall's hair caresector, with a 70% YoY increase in GMV. We believe that after this initialbreakthrough, OR is poised to become the company's next star brand.
    Raise estimates. We raise 2024/25E revenue by c.20%. With a relativelystable GPM, we also lift NP estimates by c.20% in 2024/25E to reflect thesuccess in 618 and the solid 4Q23 & 1Q24 earnings (+39% & +46% YoY).Maintain BUY with TP revised to RMB15.57, representing 35x 2024E P/E.Risks: worse-than-expected macro climate, surprisingly high return ratefor 618 events, selling expense surge, and management changes

Key beneficiary of semiconductor localization

北方华创(002371)
    We recently held an NDR with Naura Technology’s management and wemaintain our positive outlook for the Company. We expect Naura to deliverrobust revenue growth on capex expansion from downstream clients andaccelerated semi localization trend. In addition, we believe the Companycould be one of the beneficiaries of the recently launched “Big Fund III”(US$47.5bn) in China. Naura is currently our favourite under the semilocalization theme. Reiterate BUY rating for Naura (002371 CH), with anunchanged TP at RMB405.
    Geopolitical tensions have driven major economies worldwide to pursueresilience over efficiency, leading to significant investments to strengthendomestic chip fabrication capabilities. The recently established “Big FundIII” (US$47.5bn) in China is so far the largest phase of the series, withregistered capital of RMB344bn (vs. Phase I/II: RMB139bn/RMB200bn).The phase III underscores yet another Chinese government’s effort toachieve self-sufficiency in semi amid the escalating geopolitical tensions.Previous phases focused on chip fabrication, equipment, materials, etc.,and we expect similar investment interests for Phase III, as well as apotential focus on AI-related areas. We expect Naura to be one of thebeneficiaries.
    Looking forward, Naura will likely maintain robust growth on capexexpansion from clients and accelerated semi localization trend. Keydrivers of revenue could be from order wins in CCP, CVD and cleanserproducts. The Company disclosed that new orders signed in 2023 wereRMB30bn, of which 70%+ were for semiconductor equipment and 15%were for new energy/PV. We think these orders will support 40% revenuegrowth in 2024.
    We reiterate our BUY rating for Naura (002371 CH), with anunchanged TP at RMB405, based on the same 39x 2024E P/E. Weraise our GPM forecasts by 1.9ppt and 3.9ppt for 2024/25E, consideringlarger revenue contribution from more advanced equipment. Thisaccretive impact on net profit was offset by a higher projection for R&Dspending (~11% of total revenue), as the Company is expanding itsproduct coverage. Risks: 1) intensified competition from overseas anddomestic peers, and 2) escalating geopolitical tensions.

高端市场持续拓展，国际化战略快速推进

联影医疗(688271)
    2023年公司实现营收114.1亿元，同比增长23.5%；归母净利润19.7亿元，同比增长19.2%，毛利率略微提升至48.5%（+0.1ppts），我们认为主要得益于中高端产品和服务收入占比的提高，以及生产、物流等环节运营效率的提升。归母净利率下降0.6个百分点，主要是由于公司积极拓展海外业务并持续加大研发投入，销售费用率和研发费用率有所上升。1Q24，公司保持稳健增长，实现营业收入23.5亿元，同比增长6.2%；归母净利润3.6亿元，同比增长10.2%。
    设备销售稳步增长，中高端产品表现亮眼。2023年公司设备销售收入99.3亿元，同比增长21.1%，各产线收入和销量均实现增长。1）CT：2023年产线收入同比增长7.8%，中高端及超高端CT显著增长，新增装机超400台。若以产品收入及销量估算其出厂单价（ASP，下同），2023年公司CT产品ASP同比提升6.0%。2）MR：2023年产线收入实现同比58.5%的高速增长，3.0T及以上MR产品增长强劲，带动MR产品ASP同比大幅提升21.2%。在国内3.0T以上MR市场中，公司凭借uMR Jupiter5T市场份额排名第一。近日，uMR Jupiter5T已获得FDA认证。
    服务收入快速增长，服务业务毛利率持续改善。2023年服务收入同比增长42.8%至10.7亿元，服务收入占比提升至9.4%（+1.3ppt）。服务业务的毛利率上升至61.7%（+5.9ppts）。我们认为，由于维保服务通常由工程师负责，因此服务业务的快速拓展使得单位人工成本下降，带动服务业务毛利率提升。随着公司装机量的增长，服务收入有望持续快速增长。
    海外业务延续强劲增长势头。2023年公司海外业务收入同比增长54.7%至16.8亿元，海外收入占比提升至14.7%（+1.1ppt），其中亚太区域收入同比增长78.6%，占海外收入的46.9%，欧美区域收入同比增长约43.0%，占海外收入约44.9%。截至目前，公司已分别有49款和44款产品获得CE及FDA认证，业务覆盖超65个国家/地区。公司的全球服务体系也在不断完善，截至2023年底，公司全球服务网络建设覆盖超60个国家/地区，带动公司2023年海外服务收入同比增长超100%。公司1Q24海外业务收入同比增长近50%，海外收入占比超15%。我们预计，2024年联影医疗的海外业务有望继续保持同比超50%的快速增长。
    维持买入评级，目标价160.39元人民币。我们认为，尽管公司在1Q24面临国内医院招标活动延迟以及1Q23基数较高的挑战，但“十四五”配置证规划及国务院推动设备以旧换新行动方案的陆续执行都将刺激国内大型医疗设备需求的释放。我们预计23-26E公司收入和净利润将保持年复合超20%的增长，基于9年的DCF模型，给予160.39元的目标价（WACC：9.3%，永续增长率：4.0%）

Steady 1Q performance amid challenging environment

药明康德(603259)
    WuXi AppTec reported 1Q24 revenue of RMB7,982mn, down 11.0% YoY,attributable recurring net profit of RMB2,034mn, up 7.3% YoY, and attributableadjusted non-IFRS net profit of RMB1,913mn, down 18.3% YoY. 1Q24 revenue/ adjusted Non-IFRS net income accounted for 20.4%/ 16.8% of our 2024 fullyear estimates, both moderately lower than historical ranges. Non-IFRS grossprofit margin deteriorated by 2.3ppt to 38.7% while non-IFRS net profit margindecreased by 2.1ppt to 24.0% in 1Q24, due to the decline in CDMO revenuefrom COVID commercial projects, pricing erosion, ramp-ups of new facilities inits Testing and Biology segments, and escalating costs in its ATU segment.Non-COVID D&M revenue (in WuXi Chemistry segment) showed positivegrowth in 1Q24, up 1.2% YoY. Despite a challenging start of 2024, mgt. hasupheld its revenue guidance of RMB38.3-40.5bn for 2024, projecting growth of2.7% to 8.6% YoY, excluding revenues from COVID-19 commercial projects.Furthermore, mgt. reiterated that the adjusted non-IFRS net profit margin wouldbe align with the 2023 level.
    TIDES business continued to serve as a significant growth driver. In1Q24, TIDES revenue delivered impressive growth of 43.1% YoY withsubstantial 110% YoY growth in backlog. Both revenue and backlogmaintained a strong momentum from a high base in 2023. Mgt. expects 60%revenue growth for the TIDES business in 2024. Moreover, the additional22k-liter solid-phase peptide synthesizers commenced operation in Jan2024, enhancing the total capacity to 32k liters. Plans are in progress toexpand new peptide production capacity in Taixing, Jiangsu, to meet robustcustomer demand.
    Moderate recovery in clinical CRO&SMO business. In 1Q24, revenuefrom the Clinical CRO&SMO segment grew by 11.0% YoY, with SMOrevenue increasing by 26.4% YoY. The growth aligns with the upwardtrends reported by several domestic clinical CRO&SMO companies in 2023and 1Q24. The demand in China's clinical stage pharmaceutical R&D isexpected to lead the recovery, mirroring the recovery pattern observed inoverseas markets since1Q23.
    Solid customer relationships amid uncertainty. WiXi AppTec addedover 300 new clients in 1Q24, consistent with the level seen in 1Q23.Encouragingly, revenue from global Top 20 pharmaceutical companiesreached RMB2.7bn (~34% of total revenue), indicating a YoY increase of4.2% excluding COVID-19 commercial projects. However, mgt. admittedthat the draft of the Biosecure Act has started impacting WuXi ATU inacquiring new clients and orders in the US market.
    Maintain BUY. To factor in the uncertainties from geopolitical risks, we cutour TP from RMB67.53 to RMB53.23 (based on a 10-year DCF model withWACC of 10.73% and terminal growth of 2.0%). We forecast revenue togrow by -5.6%/ +10.0%/ +12.5% YoY and adjusted non-IFRS net income togrow by -12.4%/ +10.5%/ +16.4% YoY in 2024E/ 25E/ 26E, respectively.

1Q24 net profit +40% YoY in line; solid growth outlook

潍柴动力(000338)
    While Weichai Power (Weichai)’s revenue growth of 6% YoY in 1Q24 is belowour expectation, net profit of RMB2.6bn (+40% YoY) accounted for 21.4% of ourfull-year estimates (run rate in 1Q23: 20.5%), which is still in line with ourexpectation. The earnings growth was driven by margin expansion on both corebusiness and KION Group (KGX GR, NR). We maintain Weichai as our sectortop pick, given (1) the large gas/diesel price gap will continue to drive naturalgas engine demand, where Weichai has >60% market share in; (2) high-speedlarge-bore engines will serve as a structural growth driver on the back ofconstruction of more data centres. Maintain BUY with SOTP-based TP ofHK$22/RMB20.4 for Weichai H/A.
    1Q24 results highlights. Weichai’s revenue grew 6% YoY to RMB56.4bn.Gross margin expanded 3.4ppt YoY to 22.1% in 1Q24. With limited increasein SG&A and R&D expense ratio, the pre-tax profit surged 58% YoY toRMB4.2bn. Based on our calculation, the pretax profit of Weichai’s corebusiness / KION grew 45% / 93% YoY in 1Q24 (in RMB terms). Operatingcash flow in 1Q24 substantially improved to RMB1.6bn, vs outflow ofRMB471mn in 1Q23.
    Margin recovery of KION Group. KION (46.5% owned by Weichai)reported adjusted EBIT of EUR227mn in 1Q24 (+46% YoY), driven byeasing cost pressure. KION guided a full-year adjusted EBIT target ofEUR790-940mn (up 0-19% YoY).
    Weichai’s engine sales outpaced industry in 1Q24. According toCICEIA, Weichai's multi-cylinder sales (HDT, construction machinery, otherengines) grew 13% YoY to 206k units in 1Q24 (vs the industry average of adecline of ~1%), with market share of ~18% (+2.3ppt YoY).
    Risk factors: 1) weakness in engine exports; 2) lower-than-expectedreplacement demand; 3) an increase in component costs.

海内外持续高端突破，业绩增长稳健

迈瑞医疗(300760)
    2023年公司实现营收349.3亿元，同比增长15.0%；归母净利润115.8亿元，同比增长20.6%，归母净利率提升至33.2%（+1.5ppts）。2024年一季度，公司保持稳健增长，实现营业收入93.7亿元，同比增长12.1%；归母净利润31.6亿元，同比增长22.9%，归母净利率同比提升3.0个百分点至33.7%。
    IVD延续快速增长，生命信息与支持和影像产线有望复苏。2023年，公司IVD产线收入同比增长21.1%。国内市场受益于常规诊疗活动的迅速恢复和大样本量客户的加速突破，IVD收入同比增长20%，其中试剂收入同比增长超25%，带动板块毛利率提升至64.3%（+3.9ppts）。此外，借助21年开展的安徽省化学发光集采，2023年公司在当地的心肌标志物及炎症、甲功、传染病和肿瘤标志物项目都取得了同比超30%的高速增长。我们认为，安徽25省联盟化学发光集采在2024年的落地执行以及国内IVD集采的扩围将持续助推公司的高端渗透和市场份额提升。海外市场中大样本量客户的渗透也在持续加快，2023年公司成功突破106家海外第三方连锁实验室，带动海外IVD收入2021-23年复合增长超过30%。随着海外IVD平台化建设的逐步完善，公司海外IVD业务有望长期快速增长。生命信息与支持和医学影像产线在2H23受到国内公立医院招标采购延迟的影响，但微创外科和高端超声表现亮眼，2023年分别同比增长超30%和20%，公司超声的市场份额首次实现国内第一，全球第三。展望2024年，医院招投标活动有望逐季复苏，设备以旧换新政策将进一步刺激设备采购的释放，我们预计板块在2024年将加速增长。
    新兴市场引领海外市场的强劲增长。2023年，公司海外收入同比增长15.8%至135.5亿元，海外收入占比达38.8%（+0.3ppts）。随着公司产能恢复常态，公司海外业务快速复苏，2H23海外收入同比增长22.0%。2023年，公司在生命信息与支持产线、IVD产线和医学影像产线分别突破近300家、超450家和超200家全新高端客户。公司1Q24的海外收入同比增长近30%，三大产线均实现快速增长，主要得益于1）1Q23海外收入基数较低；2）海外高端客户群的加速突破。新兴市场发展迅猛，2023年和1Q24的收入增速分别超过20%和30%。我们认为，公司产品较之于国际品牌更具备性价比优势，因此公司在新兴市场的业务有望持续快速增长，成为公司海外业绩增长的主要驱动力之一。
    维持买入评级，目标价383.49元人民币。我们预计公司2024E收入和净利润均将实现20%的稳健增长，基于9年的DCF模型，给予383.49元人民币的目标价（WACC：9.6%，永续增长率：3.0%）。

公司一季度业绩为全年发展夯实了基础

中际旭创(300308)
    中际旭创公布了2023财年和2024年一季度业绩，总体超出我们和市场的预期。公司2023财年收入同比增长11.2%至107亿元人民币，净利润同比增长77.6%至22亿元人民币。一季度收入同比增长163.6%至48亿元人民币，净利润同比大幅增长303.8%至10亿元人民币。公司出色的业绩主要得益于其高速光模块（特别是400G和800G）的强劲需求，占2023财年总收入90%以上。我们将中际旭创的目标价上调至183元人民币，对应2024年30倍预测市盈率，并维持“买入”评级。
    400G光模块出货量强劲，推动一季度收入增长；预计800G光模块出货量将在今年逐季增长。受益于海外强劲的需求，公司一季度收入同比增长164%，环比增长31%。我们预计随着公司产能的如期扩张（供应端）与高科技企业对AI基础设施的持续投资（需求端），公司800G光模块的出货量将从今年二季度开始加速增长。同时，管理层指出，公司1.6T产品目前正在接受海外重点客户认证，预计将于今年下半年完成认证，并进入到客户下单环节。公司预期在下半年开始会看到规模上量。
    中际旭创一季度的增长显示：1）公司受供应链瓶颈的影响低于预期，高速光模块正常交付；2）AI需求将持续强劲。我们将公司2024E/25E年的收入预测分别上调25%/44%。同时，由于一季度毛利率下跌，我们将2024/2025E的毛利率略微下调0.2/0.3个百分点。毛利率下跌的原因包括：1）公司一季度高速光模块产品组合结构的变动（400G占比较高），以及2）年初产品定价调整等因素的影响。总体而言，随着800G光模块的加速出货，我们预计公司毛利率将逐季改善。我们对公司2024年整体毛利率维持在33.8%的水平持乐观态度。
    维持“买入”评级，目标价上调至183元人民币。我们将公司2024E/25E年的收入预测上调25%/44%，净利润预测上调35%/59%。新目标价基于2024E年30倍预测市盈率，接近5年历史平均远期市盈率（29倍）。我们对公司未来发展持乐观看法，原因包括：1）大型云厂商对400G/800G光模块的需求依旧强劲；2）关键零部件供应瓶颈得以改善，公司正在扩大800G光模块产能；3）本次定价调整好于预期；4）汇率影响（公司85%的收入来自海外）。综上所述，我们认为中际旭创是AI投资浪潮的核心受益标的之一，考虑其在光模块市场中的领先地位和先发优势，我们认为公司后续业务增速将保持强劲增长。

2023 net profit a miss; 1Q24 still weak; Stay on the sidelines

三一重工(600031)
    SANY Heavy (SANY)’s net profit in 2023 came in at RMB4.53bn (+6% YoY),which is 12% below both our and consensus estimates. In addition, net profit in1Q24 only grew 5% YoY to RMB1.58bn due to a lack of revenue growth (-1%YoY). We are still concerned about further slowdown of export this year, giventhe weakness in the overseas demand (in particular in Europe). We maintainour 2024E earnings forecast but revise up our 2025E estimates by 8% as wetake into consideration a moderate recovery in China’s market. Still, our newestimates remain 24%/29% below consensus. Maintain HOLD with new TP ofRMB14.8, based on 24x 2024E P/E.
    4Q23 results below expectations. Revenue declined 17% YoY toRMB17.9bn. Gross margin narrowed 1.9ppt YoY to 25.6%. EBIT wasRMB698mn (-25% YoY), largely helped by a fair value gain of RMB602mn.Net profit dropped by 29% YoY to RMB480mn.
    Slowdown of overseas revenue in 2H23. Overseas revenue in 2H23(62% of SANY’s revenue) grew 4% YoY to RMB20.8bn (slowed from 36%in 1H23). In terms of region, Europe grew 15% YoY to RMB8.1bn (39% ofoverseas revenue). Asia Pacific (ex-China) remained stable at RMB7.6bn(36% of overseas). Both America and Africa revenue dropped 6% YoY in2H23 (17%/7% of overseas).
    Sluggish 1Q24 results. Revenue dropped 1% YoY while gross marginexpanded 0.5ppt to 28.4%. Helped by lower R&D and administrativeexpense ratio, net profit grew 5% YoY to RMB1.58bn. On the positive side,operating cash flow improved significantly to RMB4.38bn (vs -RMB1.6bn in1Q23).
    Valuation. We revise up our TP to RMB14.8, based on 24x 2024E P/Ewhich is equivalent to 0.5SD above the average of 20x since 2017 (previousTP: RMB12.3, based on 19x). We now apply an above average targetmultiple as we see initial signs of stabilisation of excavator sales in China’smarket, and we expect a moderate recovery in 2025E.
    Upside risk: stabilization of property investment in China; Downside risk:further slowdown of overseas demand.

Meaningful demand recovery in 1Q24

泰格医药(300347)
    Tigermed reported1Q24revenue of RMB1,660mn,down8.0%YoY,andattributable recurring net income of RMB303mn,down20.5%YoY,which wasmainly due to the substantially reduced gains on fair value changes andinvestment changes(RMB8mn in1Q24vs RMB198mn in1Q23).1Q24revenue/attributable recurring net income accounted for19.8%/18.0%,respectively,ofour2024full-year estimates,which were largely in line with its pre-COVIDaverage level.1Q24revenue would be flat compared with1Q23if excludingCOVID vaccine related revenue.Gross profit margin(GPM)in1Q24was37.8%,significantly improved by5.0ppt QoQ,driven by ongoing cost managementmeasures as well as the MoM GPM improvements of its lab services.Accordingto mgt.,GPM would be38.5%in1Q24,flat QoQ,if excluding COVID vaccinerelated revenue.Mgt.targets to grow the attributable recurring net income by25-30%QoQ in2Q24,considering the accelerated revenue conversion fromcontracts and the cost control measures.
    Demand experiencing meaningful recovery in1Q24.According to mgt.,1Q24contract signings rebounded to double-digit growth,with Mar showingan acceleration compared to Jan and Feb.The upward trend has persistedinto April.Specifically,orders from MNC and domestic pharma clientscontributed to a notably larger proportion in total orders while orders fromthe U.S.and Australia remain robust.Encouragingly,there are signs ofrecovery in orders from domestic biotech firms,thanks to the recovery ofbiotech funding.Tigermed’s BD team will continue to focus on exploringopportunities from MNC and domestic pharma clients.
    Strengthening cost control.Tigermed plans to continue its cost control onSG&A expenses and GPM optimization.Mgt.indicated that,with its asset-light business model,Tigermed possesses ample leverage on cost controls,which,for instance,include increasing the utilization of decentralized clinicaltrial(DCT)platforms(applied in~20%projects as compared with~17%byend-2023),establishing integrated teams within specific therapeutic areas,and reallocating personnel across departments as needed.
    Globalization remaining a high priority.In the global market,Tigermedstrategically serves Chinese companies targeting global market,as well asoverseas local clients with limited access to international CRO services.Thecompany has recruited a local BD team in the U.S and is currently engagedin multiple projects with U.S.local clients.Tigermed intends to furtherexpand team sizes in the U.S.and India to enhance its global operation.
    Maintain BUY.We trim our TP from RMB68.57to RMB66.82,based on a10-year DCF model(WACC:10.95%,terminal growth:2.0%),to factor inthe slower earnings projection and uncertainties in demand recovery pace.We forecast Tigermed’s revenue to grow11.3%/16.2%/20.6%YoY andattributable recurring net income to grow11.9%/20.8%/25.6%YoY in2024E/25E/26E,respectively.

FY23 in-line with better-than-feared 1H24 earnings guidance; Solid outlook ahead

立讯精密(002475)
    Luxshare posted FY23 revenue/NP growth of 8%/20% YoY, largely in-line withpre-announcement of 20-25% YoY, while 1H24E earnings guidance of 20-25%YoY (implying 2Q24E 18%-27% YoY) is above market expectations. We believethe strong 1H24 outlook is mainly driven by 1) datacenter connectivity(optic/copper) products, cooling and power solutions, and 2) auto bizmomentum on stronger NEV and ADAS/AD demand from overseas markets.Looking forward, despite recent macro headwinds and iPhone shipmentweakness, we believe Luxshare is well-positioned to capture opportunities indatacentre connectivity business, automotive connector business, gain share iniPhone/MacBook/iPad/Watch OEM/components and Apple’s multiple productlaunches in 2H24E. We slightly adjusted FY24-25E EPS by -1/-1% to factor inFY23 results. The stock now trades at 14.2x/11.5x FY24/25E P/E, close to 1-SD below 5-yr avg. P/E. Maintain BUY with TP of RMB46.61 based on same24x FY24E P/E.
    FY23 & 1Q24 mostly in-line. Luxshare’s FY23 revenue/earnings growth of8%/20% YoY was mostly in-line with earlier preannouncement. By segment,CE/computer/auto/communication delivered +10%/-34%/+51%/+13% YoY.Mgmt. highlighted business breakthrough with key customers in datacentreconnectivity products, cooling and power product solutions with potentialclient/order wins. Auto business saw healthy growth momentum backed bystrategic partnerships and solid auto product portfolio. In addition, Luxsharealso announced 1Q24 revenue/earnings growth of 4.9%/22.5% YoY withGPM of 10.7%, above market expectations.
    Better-than-feared 1H24 earnings guidance; datacenter and autobusiness as key growth drivers. Luxshare pre-announced 1H24Eearnings growth of 20-25% YoY, implying 18%-27% YoY growth in 2Q24E.We believe the solid 2Q24E earnings is driven by 1) accelerated demand indatacentre connectivity, 2) auto business expansion in both domestic andoverseas markets, and 3) GPM recovery and expense controls.
    Attractive risk/reward at 14.2x/11.5x FY24/25E; Reiterate BUY. Weslightly adjusted FY24-25E EPS to reflect FY23 results. The stock nowtrades at 14.2/11.5x FY24/25E P/E, 1-SD below 5-year hist. avg P/E.Reiterate BUY with TP of RMB 46.61 based on same 24x FY24E P/E.Catalysts include top module/ iPhone share gain, datacenter/auto tier-1business progress and Apple’s multiple new product launches in the comingmonths.

4Q23 & 1Q24 earnings in line; Staying positive on overseas growth

浙江鼎力(603338)
    Zhejiang Dingli (Dingli)’s net profit in 2023 grew 49% YoY to RMB1.87bn, in linewith the pre-announced profit of RMB1.86bn in Jan. In 1Q24, the adjusted netprofit (excluding fair value loss of RMB101mn) grew 27% YoY to RMB404mn,which is in line with our expectation. During the post results call, managementrevealed that sales in the US has accelerated since early Apr, with a full year salestarget of 2k units of boom lifts. Besides, boom lifts sales in overseas is expectedto exceed that in China in 2024E (47% in 2023), implying better gross margin. Inaddition, phase five production plant is in ramp up stage, with a monthly boom liftoutput of 150 units at present which will be gradually increased. We raise our2024E/25E earnings forecast by 7%/9%, due to higher assumptions on volume,gross margin and finance income. Accordingly, we revise up our TP to RMB75,based on unchanged 18x 2024E P/E (1SD below the historical average of 31x).Dingli remains our key pick given the continuous breakthrough in overseasmarket.
    4Q23 net profit +51% YoY to a record high. Revenue grew 23% YoY toRMB1.57bn in 4Q23. Gross margin expanded 4.1ppt YoY to 41%, driven byrising margin of boom lifts. Administrative expense ratio expanded 1ppt to2.6%. Net profit surged 51% YoY to RMB574mn which is a record high. Forthe full year in 2023, revenue grew 16% YoY to RMB6.3bn (overseas/Chinamix: 64%/36%). Among the overseas sales, 75% came from the US andEurope. Net profit grew 49% YoY to RMB1.87bn. Proposed dividend implies27% payout ratio (up from 20% in 2022).
    Adjusted net profit +27% YoY in 1Q24: Revenue grew 11% YoY toRMB1.45bn. Dingli revealed that a portion of the overseas sales in 1Q24will be recognized as revenue in 2Q24. Gross margin expanded 3.5ppt to41.1% (largely stable QoQ). Dingli recognized RMB101mn of fair value lossdue to the share price pullback of Horizon CD (9930 HK, BUY). Excludingthis item, the adjusted net profit would be RMB404mn, up 27% YoY.
    Progress of anti-dumping investigation in the EU. Dingli expects theresults will be announced in Jun. In the meantime, Dingli has acceleratedthe sales to the EU in response to the rush orders. Europe accounts for~37% of Dingli’s overseas sales, in which the EU accounts for half. We thinkthe risk is manageable given Dingli’s experience in handling theinvestigation in the US.
    Key risks: (1) Further intensified competition in China’s AWP market; (2)slowdown of overseas demand; and (3) higher-than-expected anti-dumpingduties and countervailing duties in the US and EU.

1Q24 results set stage for accelerated growth in 2024

中际旭创(300308)
    Innolight has recently released results for FY23 and 1Q24, exceeding both ourand market’s expectations. For FY23, the company's revenue grew by 11.2%YoY to RMB10.7bn, with net profit soaring by 77.6% YoY to RMB2.2bn. 1Q saweven more impressive growth, with revenue up by 163.6% YoY to RMB4.8bnand net profit increasing by an astonishing 303.8% YoY to RMB1.0bn. weattribute the impressive results largely to strong demand for its high-speedoptical transceivers (esp. 400G & 800G), making up over 90% of its totalrevenue in FY23. We revise up our earnings forecasts and raise TP for Innolightto RMB183, corresponding to the same 30x 2024E P/E. Maintain BUY.
    Accelerated 1Q growth due to higher 400G shipments; 800G isexpected to ramp up production and contribute greater revenue in thefollowing quarters. 1Q24 revenue grew 164% YoY and 31% QoQ, partiallydue to higher-than-expected shipments of 400G transceivers, driven bystrong overseas demand (particularly from Ethernet). We expect 800Gshipments to accelerate starting in 2Q24, as production capacity expandson schedule (supply) and investment in AI infrastructure continues(demand). Mgmt. also noted that the company’s 1.6T product is currentlyundergoing certification at clients and is expected to begin production in 2H.
    Innolight’s accelerated 1Q24 growth suggests 1) the impact from supplychain bottleneck was milder-than-anticipated and high-speed transceiverswere delivered on time, and 2) the demand from AI continues to be strong.Therefore, we raise our revenue forecasts by 25%/44% for 2024/25E. Weslightly revise down GPM forecasts by 0.2ppt and 0.3ppt, as 1Q24’s GPMwas lowered by 1) an unfavourable mix in high-speed transceivers revenue(i.e., higher share of 400G revenue) and 2) a regular pricing adjustment.Overall we expect GPM to improve QoQ as 800G shipments pick up pace.We are optimistic that GPM will sustain a robust level of 33.8% in 2024E.
    Maintain BUY, with new TP at RMB183. We revise up revenue forecastsby 25%/44% and NP forecasts by 35%/59% for 2024E/2025E. The new TPis based on the same 30x 2024E P/E, which is close to 5-year historicalaverage of forward P/E (29x). We maintain a positive outlook on Innolight,given 1) the strong 400G/800G demand from hyperscalers, 2) the companyis effectively scaling up 800G production with improved supply of keycomponents, 3) pricing adjustment is better-than-feared (no severe marginerosion due to competition, demonstrating the company’s dominant industryleadership), and 4) USD/RMB tailwind (85% revenue from overseasmarkets). We think Innolight will remain the industry leader in high-speedoptical transceivers and continue to ride the tailwind of the AI boom. Risks:1) Intensified geopolitical tensions, 2) slower-than-expected new productramp-up speed, and 3) further delay in US interest rate cut.

4Q23&1Q24 earnings not exciting; but more positive drivers to come

恒立液压(601100)
    Hengli’s net profit in 2023 was +7% YoY to RMB2.5bn, which is -5%/+3% versusour/consensus estimates. Net profit in 1Q24 dropped 4% YoY to RMB602mn,due to weak demand for excavators’ hydraulic components and an increasedexpense ratio. We trim our earnings forecast in 2024E/25E by 13%/15%, mainlydue to lower volume assumptions for excavator-related products. Our TP isrevised down to RMB64, based on 31x 2024E P/E (historical average). We stilllike Hengli as (1) revenue contribution from non-excavator componentscontinues to increase; (2) product expansion to ball screws (a key componentof robots), which started trial production in 1Q24, will likely serve as a newgrowth driver; (3) the commencement of hydraulic components production basein Mexico starting from 2Q24 will help speed up its penetration in the US market.
    Key highlights in 2023 results: Revenue in 2023 grew 10% YoY toRMB9bn (2%/19%15%/17% growth of hydraulic cylinders / pump & valve /hydraulic systems / components). In particular, sales volume of all nonexcavator products reported growth. Blended gross margin expanded1.3ppt YoY to 41.9%, driven by hydraulic cylinders. EBIT, however, grewonly 8% due to a higher SG&A expense ratio. Net profit in 2023 grew 7% toRMB2.5bn while operating cash inflow rose 30% YoY to RMB2.68bn. In4Q23, net profit increased by 26% YoY to RMB745mn, driven by 16%revenue growth and gross margin expansion (to 46%).
    Key highlights in 1Q24 results: Net profit dropped 4% YoY to RMB602mn,due to a 3% YoY decrease in revenue, 0.8ppt YoY gross margin contraction(to 40.1%) and an increase in expense ratio in general, which offset theincrease in finance income (helped by weak RMB). Net profit in 1Q24accounted for 22% of our full-year estimates (run rate in 1Q23: 25%).
    Maintain BUY. Our new TP of RMB64 (previously: RMB83) is based on 31x2024E P/E (rolled over from 2023), equivalent to the historical average. Weno longer assign a valuation premium (previously 1SD above the historicalaverage) as we expect relatively stable earnings growth between 2024Eand 2026E.
    Risk factors: (1) further weakness in the demand for hydraulic componentsfor excavators; (2) slower-than-expected new business development

Focus on VR/AR/gaming business and margin recovery in FY24/25E

歌尔股份(002241)
    Following a challenging 2023, we expect AI-driven upgrade and AR/VR productlaunches will boost revenue and profitability recovery in FY24E, and impact ofshare loss of the major TWS project should normalise in 2H24E. In the longerterm, we believe Goertek will continue to benefit from AR/VR secular trend withmore product launches from major players such as Meta, Sony, Google,Samsung and Huawei. For FY23, revenue/earnings decline of -6%/-38% YoYwas mainly dragged by TWS order loss and weak VR/AR demand, but we areencouraged by continued GPM recovery in 4Q23 (10.6% vs. 7.7%/10.1% in2Q/3Q23). To reflect FY23 results and gradual recovery in FY24/25E, wetrimmed FY24/25E EPS by 9%/11% and adjusted TP to RMB17.56, based onsame 25x FY24E P/E (7-yr hist avg). Maintain BUY.
    2024/25 Outlook: Riding on “AI+XR” trend, PS5/Quest 3 ramp-up andmargin recovery. For 2024, we are positive on shipment momentum ofPS5/Quest 3 and stabilised hearable product segment, and we also believeApple’s Vision Pro and edge-AI trend will accelerate AR/VR/XR productcycle, benefiting Goertek as a global AR/VR/XR OEM leader. In 2024/25, weexpect AR/VR/XR product pipeline will come from major players such asMeta, Sony, Google, Samsung and Huawei. Overall, we expect acousticsprecision component and smart products segment (gaming, AR/VR) willrebound 4%/9% YoY in FY24E (vs -7%/-7% in FY23), while hearableproducts (AirPods, Android TWS) will drop 22% YoY in FY24E. GPM willrecover to 10.5%/10.5% in FY24/25E (vs 8.9% in FY23E), given improvingutilization and hearable product margin recovery.
    FY23 earnings bottoming with 4Q GPM recovery. FY23 sales/net profitdecline of 6%/38% YoY were mainly impacted by TWS share loss andVR/AR demand weakness, but we are positive on improving 4Q GPM to10.6% (vs. 7.7%/10.1% in 2Q/3Q23), backed by better utilization and costcontrol. In 2H23, precision components/hearable products/smart productsegments posted -6%/+10%/-23% YoY, and GPM recovered to20.4%/8.4%/8.7% in 2H23 (vs. 20.6%/4.1%/5.9% in 1H23).
    Maintain BUY. We think AR/VR technology leadership and product roadmapin TWS/XR/acoustics/gaming segments will enable it to benefit from industryrecovery and new MR product cycle in FY24/25E. Maintain BUY withlowered TP of RMB 17.56. Upcoming catalysts include new XR productlaunches and continued margin recovery

Firmly implement the globalization strategy

迈瑞医疗(300760)
    Bloomberg reported (15 Apr) that the European Union is set to launch an IPIinvestigation into China’s procurement of medical devices, seeking to addressconcerns about the policy’s unfair favouritism towards domestic suppliers in China.According to anonymous sources, the investigation could be announced as earlyas mid-April and may result in restricting Chinese companies’ access to tenders inthe EU. In May 2023, the US-European Union Trade and Technology Council(TTC) issued a statement indicating that the US and EU were exploring possiblecoordinated actions to address China’s non-market policies and practices.
    The International Procurement Instrument (IPI) regulation acts as a newtool to tackle market protection in public procurement by third countries.Under the IPI, the European Commission can initiate an investigation into anon-EU country’s practice if it recurrently undermines EU companies’ accessto its procurement market. Upon initiation, the Commission will invite the thirdcountry concerned to enter into consultations and seek to eliminate or remedyany restrictive practices. The investigation can be suspended at any time if thethird country takes satisfactory corrective actions. Otherwise, the EuropeanCommission will adopt an IPI measure in the form of a score adjustment or anexclusion of tenders. The IPI measure applies to procurement contracts of atleast EUR15mn for works and concessions, and EUR5mn for goods andservices, which expires after 5 years but may be extended for a further 5 years.
    The IPI regulation allows room for mediation. China is an importantmarket for global medical device players. Revenue from China accountedfor 13% of Siemens Healthineers’ total revenue in FY23. Moreover, a majorityof medical device MNCs have established factories in China and complied withthe identity of domestically-produced medical devices which enables them toaccess to China’s government procurements. Therefore, we believe that theprimary objective of the IPI investigation is to foster reciprocal access tointernational markets, rather than incurring losses for both parties involved.Given that the investigation can extend up to nine months, or even 14 monthsunder justifiable circumstances, there remains a degree of uncertaintysurrounding the outcome of the IPI process.
    Limited impact on Mindray’s business. Mindray’s revenue from Europeaccounted for 5.9% of its total revenue in 1H23, which is relativelymodest. Additionally, Mindray does not hold any individual EU tenders withcontract values exceeding EUR5mn. Furthermore, markets outside of Europeand America account for a significant portion of global medical device demand;for instance, Siemens Healthineers' revenue from regions outside the US andEMEA constituted 33% of its total revenue in FY23. Consequently, we believethat there is considerable potential for Mindray to further expand its businessin markets beyond America and Europe.
    Maintain BUY. We maintain our TP of RMB383.43 based on a 9-year DCFmodel (WACC: 9.0%, terminal growth rate: 3.0%).

做难的事，做对的事

联影医疗(688271)
    联影医疗成立于 2011 年，是中国大型医疗设备的龙头企业， 产品线覆盖 CT、 MR、MI、 RT、 XR 以及生命科学仪器。 2019-2023 年公司收入年复合增长率达 39.9%。 我们预期公司将受益于中国医疗设备市场扩容及国产替代，同时将持续开拓海外市场。
    深厚技术实力积累， 大型医疗设备高端市场的破局者。 中国大型医疗设备高端市场长期由进口品牌垄断，国产份额较低。联影医疗长期保持高研发投入， 9M23研发费用率达 18.4%。 经过多年研发累积，公司不仅建立了从低端临床到高端科研全覆盖的大型医疗设备产品矩阵， 更持续实现技术突破。我们认为，在部分高端设备领域，联影医疗已跻身国际一流， 乃至引领全球高端医疗设备的发展。 性能方面， 联影医疗的高端 CT、 MR 和 PET/CT 已看齐全球龙头 GE 医疗、飞利浦和西门子医疗 (“GPS”) 的高端产品。 创新突破方面，联影医疗已推出多款“行业首款”超高端设备，如行业首款 75cm 超大孔径 3.0T MR、行业首款可用于全身检查的超高场强 5.0T MR、行业首款具有 4D 全身动态扫描功能的 PET/CT 和行业首款诊断级 CT 引导的一体化直线加速器。
    国内市场持续扩容，中高端市场大有可为。 与海外地区相比， 中国大型医疗设备的人均保有量较低， 中国大型医疗设备市场具备较高成长空间。 根据医工研习社和 OECD 的数据，截至 2021 年底，中国 CT、 MR 和 PET 设备的人均保有量分别为每百万人 34 台、 9 台和 0.6 台，而美国人均保有量分别达到每百万人 43 台、38 台和 5.8 台。此外， 配置证管理的放松、配置证数量的大幅增加以及国务院推动设备以旧换新行动方案的出台都将有效地刺激国内大型医疗设备需求的释放，带动国内中高端医疗设备渗透率的提升，国产龙头联影医疗有望优先获益。
    高举高打加速全球化布局，出海潜力逐渐释放。 2019-2022 年，公司海外收入的年复合增长率达 121.8%，海外收入占比由 3.3%提升至 11.7%。 9M23 公司实现海外收入 10.3 亿元，同比增长 39.7%，海外收入占比进一步上升至 13.8%。联影医疗秉持高举高打的出海战略，利用差异化的创新产品持续突破海外高端市场，高端设备 uCT 960+、 uEXPLORER、 uMR Omega、 uPMR 790 等陆续进驻海外大型医院和研究机构。公司 9M23 的海外收入中，欧美成熟市场占比 47.0%，亚太市场占比 46.8%，海外收入来源分布均衡。我们认为，借助出色的产品力，随着公司全球化运营体系的搭建完善，公司海外业务将持续高速增长。
    首次覆盖给予“买入”评级，目标价 161.42 元人民币。 2023 年，联影医疗实现收入 114.1 亿元，同比增长 23.5%；归母净利润 19.7 亿元，同比增长 19.2%。 我们预计 2023-26 年公司收入和归母净利润将分别实现 25.7%和 24.4%的年复合增长，基于 9 年的 DCF 模型，给予 161.42 元人民币的目标价（WACC: 9.3%， 永续增长率: 4.0%） ，对应 55 倍 2024 年 P/E