Performance review

2022 results are in line with expectations

The company announced its 2022 results: revenue of 9.0.2 billion yuan, an increase of 73.4% over the previous year; Guimu's net profit was 490 million yuan, an increase of 56.5% over the previous year. The performance was in line with our expectations. Looking at a single quarter, 4Q22's revenue was 2,407 million yuan, up 21.4% year on year; Guimu's net profit was 135 million yuan, down 6.0% year on year.

Lithium battery revenue increased, and gross margin declined. The revenue of lithium battery equipment in 2022 was 8.19 billion yuan, an increase of 66.9% over the previous year, which is the company's main source of revenue. The company's comprehensive gross profit margin (non-tax deductible) in 2022 was 20.3%, -1.6ppt compared to the previous year. In 2022, the company's sales, management, R&D, and financial expenses ratio was -1.3/-0.8/-1.2/+0.9 ppt to 2.2%/2.7%/5.4%/-0.1%, and the company's net profit margin in 2022 was -0.6ppt to 5.4% year-on-year.

New orders are plentiful. In 2022, the company's new orders once again exceeded 10 billion yuan. Major customers include Ningde Times, BYD, Sunwoda, Honeycomb Energy, Guoxuan Hi-Tech, and Yiwei Lithium Energy. Among them, overseas orders accounted for more than 10%, an increase of 100% over the previous year. By the end of 2022, the balance of the company's inventory and contract liabilities was 306/1.70 billion yuan, an increase of 23.0/ 35.8% over the previous year. The net cash inflow from the company's operating activities in 2022 was 330 million yuan, a year-on-year decrease of 120 million yuan, mainly due to the increase in the company's business scale, increased sales repayment, and increased procurement and operation management costs.

Development trends

Downstream demand in the industry is expected to continue to be booming in 2023. According to the China Automobile Association, in February 2023, China sold 525,000 new energy vehicles, an increase of 55.9% over the previous year. According to the China Automobile Power Battery Industry Innovation Alliance, the installed capacity of power batteries in China was 21.9 GWh, an increase of 60.4% over the previous year. According to estimates by the China Automobile Association, sales of new energy vehicles in China will exceed 9 million units in 2023, which is expected to increase by about 30%.

We expect orders to fall back in 2023. We estimate that downstream production expansion will be around 300 GWh in 2021 and 500 GWh in 2022. In 2022, the company once again signed more than 10 billion yuan of new orders, of which overseas orders accounted for more than 10%, and overseas orders doubled. Looking ahead, we expect overseas lithium battery markets and energy storage demand to contribute to growth in 2023, while domestic bids for lithium batteries will decrease year over year. We expect the overall bidding volume of the industry to remain high in 2023.

Profit forecasting and valuation

Considering the slowing growth rate of industry orders, we lowered our 2023 revenue and EPS forecasts by 8% and 3% to 10.7 billion yuan and 1.17 yuan, and introduced the 2024 EPS forecast of 1.14 yuan. The company's current stock price corresponds to 2023/2024 16.3x/16.7x P/E. Based on the 2023 18x P/E, we lowered our target price by 9% to 21.00 yuan, with room for 10% upward and maintaining a neutral rating.

risks

New orders fell short of expectations; product delivery fell short of expectations.