Brief performance review
On the evening of April 27, the company disclosed its annual report for '22 and its quarterly report for '23: (1) the company achieved revenue of 2,697 million yuan in '22, a decrease of 8.41% over the previous year; and net profit of 414 million yuan, a decrease of 10.43% over the previous year; (2) 1Q23, the company's revenue was 626 million yuan, up 2.62% year on year, and Guimo's net profit was 8.39 million yuan, up 24.25% year on year, slightly exceeding expectations.
Management analysis
1. Demand in the downstream general manufacturing industry is recovering steadily, and the company's revenue growth inflection point has arrived. (1) Looking at the business segment in '22, the revenue of gear reducers/cycloidal speed reducers/GNORD speed reducers was 20.1/43/14 billion yuan respectively, -5.8%/-16.4%/-13.8%; the company's gear reducers only declined slightly, mainly due to the company's modular speed reducers, which showed sufficient resilience and great potential in recent years, and sales declined slightly; at the same time, the company's new-generation industrial gearbox series products were widely welcomed by customers after being launched on the market, and revenue bucked the trend. As a result, the revenue share of modular speed reducers and industrial gearbox products with strong market competitiveness and high added value has further increased, providing a strong guarantee for the company's performance. Furthermore, benefiting from increased capital expenditure in the new energy lithium battery industry, the company further increased market development in the fields of lithium batteries, chemicals and pharmaceuticals, port lifting, logistics and warehousing, grain, oil and feed, and GNORD's revenue declined slightly. (2) In 1Q23, the downstream general manufacturing industry is gradually picking up, and the company's revenue increased slightly.
2. Benefiting from the reduction in raw material costs and the gradual restoration of the company's profitability. (1) The gross margin in 2022 was 26.74%, -0.38pct compared to the previous year, which remained stable; by product, the gross margin of gears, cycloidal pinwheels, and GNORD reducers was -1.31/+1.89/+1.94pct, respectively. 4Q22 sales gross profit margin was 28.9%, +2.8 pct over the previous month; 1Q23 sales gross margin was 27.2%, +2.0pct year on year; as raw material prices stabilized, the company's gross margin level gradually recovered. (2) The company's expense rate in '22 was 10.3%, -0.1pct over the previous year, which remained stable overall; the net interest rate was 15.3%, -0.4pct year-on-year. In 1Q23, the company's expenses rate for the period was 12.0%, year-on-year - 0.4 pct; net interest rate was 12.8%, +2.2 pct year over year, and profitability was further repaired.
Profit Forecasts, Valuations, and Ratings
We expect the company's net profit to be 55/ 67/83 million yuan in 2023-25, and the current price of the company's stock corresponding to PE valuation is 23/19/15 times, maintaining the “buy” rating.
Risk warning
The risk of increased competition, the risk of downstream demand falling short of expectations, and fluctuations in product prices.