Key points of investment
Incident: In 2022, the company achieved operating income of 3,585 million yuan, a decrease of 4.56%; net profit of the mother was 386 million yuan, a decrease of 1.86%, after deducting net profit of 290 million yuan, an increase of 16.26%, higher than our expectations.
Heavy Industries Limited fulfilled its performance promise, and 2022Q4's performance far exceeded expectations. In 2022, Heavy Industries Limited achieved net profit of 382 million yuan, after deducting 291 million yuan, exceeding the performance promise of 224 million yuan.
2022Q4 achieved revenue of 1,188 million yuan, an increase of 21.82%; Guimu's net profit was 149 million yuan, an increase of 157.78%, an increase of 114.68% over Q3. We think this was mainly due to the sharp increase in quantitative profits brought about by Q4's new sanitation equipment, especially hydrogen energy equipment.
New energy sources for sanitation contributed mainly to higher gross profit margins, and mining equipment performed brilliantly. In 2022, 1) Sanitation equipment: Achieved revenue of 1,784 billion yuan, an increase of 11.59% over the same period, and gross margin increased by 3.86 pct to 32.34%. The increase in revenue came from an increase in sales of new energy sanitation equipment. The increase in gross margin was driven by an increase in the share of high-margin electric and hydrogen energy sanitation equipment. 2) Sanitation services: Achieved revenue of 701 million yuan, an increase of 15.89% over the same period, and gross margin increased by 5.35 pct to 29.74%. 3) Construction machinery: Achieved revenue of 972 million yuan, a decrease of 27.98%, and gross margin fell 6.56pct to 23.25%. Revenue was mainly affected by factors such as the decline in real estate and the slowdown in fixed asset investment. Among them, mining equipment performed well, achieving revenue of 671 million yuan, an increase of 123.10% over the same period.
The release of new energy for sanitation is expected to accelerate. The company's new energy equipment will maintain its leading position, and hydrogen fuel products will be released in small quantities. In 2023, a pilot zone for comprehensive electrification of vehicles in the public sector was launched, making it clear that the penetration rate of new energy in the fields of buses, leasing, sanitation, postal express delivery, and urban logistics distribution in pilot cities will strive to reach 80%. With stronger policies, the penetration rate of new energy sources for sanitation is expected to accelerate.
According to Jiaotong Insurance data, in 2022, the company insured 3,931 sanitation vehicles, ranking fourth in the industry; among them, 1,400 new energy sanitation vehicles were insured, an increase of 21.11%, with a market share of 28.71%, ranking first in the industry for three consecutive years; 107 fuel cell products were insured, with a market share of 49.77%, number one in the industry. Currently, fuel cell products have high unit prices and strong profitability, effectively enhancing the company's performance.
Develop green and smart mines on a regular basis to build the first brand of new energy mining equipment. In 2022, the company continued to maintain the competitive advantage of the industry's number one brand in the field of new energy mining vehicles. Through channel expansion and model innovation, new energy mining vehicle projects such as charging, power exchange, and wire-controlled chassis were continuously signed and implemented. The company's pure electric mining vehicles have been batch operated or tested in more than 100 mining areas in 28 provinces across the country, and are widely used in various work scenarios such as mine/port transportation and tunnel construction.
Profit forecast and investment rating: Considering the active implementation of the sanitation and new energy industry policy, the release of electric equipment & hydrogen energy products is expected to accelerate. We raised the company's net profit of 2023-2024 from 383/459 million yuan to 414.503 million yuan. It is estimated that the net profit returned to the mother in 2025 will reach 616 million yuan. The current market value corresponds to PE 16/13/11 times that of 2023-2025, maintaining the “buy” rating.
Risk warning: The penetration rate of new energy sources falls short of expectations, market competition intensifies, and commodity prices are rising.