Multiple factors led to a year-on-year decline in net profit of 1H22
Acolan 1H22 achieved operating income/net profit of 436 million yuan/22.83 million yuan, compared to +12.1%/-54.1%, 2Q22 achieved operating income/net profit of 206 million yuan/9.83 million yuan, +2.2%/-47.4% year on year. The decline in net profit returned to the mother in the first half of the year was mainly due to higher procurement costs of raw materials, a lower proportion of self-produced diesel engine products in Guoliang, and increased costs. We expect net profit attributable to the mother for 22-24 to be $0.71/1.26/256 million (previous value: $1.46/295/$464 million), and the corresponding EPS is $0.89/1.58/3.19. The company is leading in market development and technology research and development, benefiting from increased demand in Country 6. After the downstream recovery, the industry space and the company's market share are expected to increase simultaneously, and performance elasticity is high. It was given 18.8x PE in 2023 (referring to the comparable company Wind's unanimous forecast of an average PE value of 15.7x in 2023), with a target price of 29.70 yuan/share, maintaining the “buy” rating.
The prosperity of the automobile industry is sluggish, and profitability is declining in stages
The epidemic in many places had a severe impact on China's automobile industry in the first half of the year. Automobile production and sales declined in a cliff-style manner. According to statistics from the China Association of Automobile Manufacturers, China's commercial vehicle production and sales in the first half were 1,683/1,70.2 million units respectively, down 38.5%/41.2% from the previous year. The company rose to the challenge and achieved revenue +12.1% year on year in the first half of the year, gross margin was -8.1pct to 20.1% year on year, and net profit was -54.1% year on year. The main reasons were: 1) The epidemic in many places affected the upstream supply chain and downstream customer demand, and raw material procurement costs were higher; 2) The proportion of self-produced parts of the country's diesel engine products was lower than in the middle and late stages of the country's fifth stage, and the localization process fell short of expectations; 3) the cost of management during the period increased by 63.9%, mainly due to the acquisition of subsidiary ABF, with R&D expenses +30.7% compared to the same period.
Expect an increase in product sales from Country 6 and African Country 4
The company's main products are national six standard gasoline and diesel engine aftertreatment products. At the same time, it is actively developing the post-processing market in the hybrid field. According to the China Association of Automobile Manufacturers and the semi-annual report, the market share of the company's products in light diesel trucks was 16.53%, an increase of 3.62 pct over the previous year. The six national motor vehicle standards were fully implemented in July 2021, and the company took the lead in market development and technology research and development. Although short-term performance was dragged down by the slump in the downstream automobile industry, we believe that after downstream demand recovers, the company is expected to achieve rapid growth. In addition, the four non-road national standards will be implemented in December 2022. The company has carried out product pre-research and calibration tests with many customers in the non-road field, which may contribute new growth points in the future.
The target price is 31.68 yuan/share, maintaining the “buy” rating
Since the production and sales volume of downstream commercial vehicles and large-scale effects of raw material procurement fell short of expectations, we lowered the sales volume and gross margin forecasts for diesel engine products in China's six standard gasoline and diesel engine products. The estimated EPS for 22-24 was 0.89/1.58/3.19 yuan, giving 18.8x PE in 2023, with a target price of 29.70 yuan/share (previous value: 35.13 yuan/share, based on 19.3x PE in 2022) to maintain the “buy” rating.
Risk warning: There is a risk of a downturn in the prosperity of the automobile industry, the risk of fluctuations in raw material prices, and the localization process of China's six diesel engine products fell short of expectations.