Performance review

The 2022 performance was lower than our expectations, and the 1Q23 performance was in line with expectations

The company announced 2022 and 1Q23 results: 2022 revenue of 19.626 billion yuan, +11.6% year on year; net profit of the mother was 1,007 billion yuan, -20.4% year on year. 4Q22 revenue was 5.644 billion yuan, +20.3% year-on-year, -3.3% month-on-month; net profit of the mother was 191 million yuan, -40.6% yoy, -57.6% month-on-month. Affected by asset impairment, the 2022 performance fell short of our expectations. 1Q23 revenue was 4.637 billion yuan, +10.5% year on year, -17.9% month on month; net profit of the mother was 200 million yuan, +1.6% year on year, +4.40% month on month, in line with expectations.

Development trends

Revenue rose steadily in 2022, and chassis modules and electronics ushered in new opportunities for growth. By business type, interior parts and exterior parts are still the company's core business, with +13.9%/11.2% year-on-year respectively to 8.778/3.403 billion yuan, accounting for more than 60% of total business revenue; metal parts benefited from the gradual release of “thermoformed” products, with revenue reaching +7.68% to 4.699 billion yuan over the same period; the electronics business maintained rapid growth, from +17.05% to 1,964 billion yuan over the same period last year. We believe that at present, the company is expanding further from cockpit products such as interior and exterior parts to chassis modules such as metal parts, which is expected to create a second growth curve. At the same time, the company continues to expand its new energy business layout, and new energy electronic components and other businesses are expected to drive the continued expansion of the electronic components business.

Impairment losses affected 2022 profits, and losses in the US business led to a decline in gross profit. On the profit side, the company's profit level declined in 2022. The main reason was that the company's 4Q22 asset impairment was 180 million yuan, of which the impairment of goodwill reached 100 million yuan, mainly due to long-term losses in Lawrence's overseas business. The gross margin for 4Q22 was 15.70%, -5.24/-4.41ppt respectively. The main reason was that the increase in US losses led to a decline in gross profit in the interior subsector, which affected the company's short-term gross profit level. With the recovery of US business, the company's gross margin rebounded to 16.31% in 1Q23. On the cost side, the company's expense level remained stable in 2022, and the sales/management/R&D expenses ratio was -0.05/-0.15/-0.13ppt, respectively.

Overseas business may reach an inflection point, and the new energy business is expected to achieve volume. The company's overseas business has been losing a lot for a long time. By integrating overseas business resources, the company closed the German HSB plant, and completed the transfer of production lines at the German HIB plant, the British NAS factory, and the North American plant to optimize production capacity efficiency. At the same time, the company is vigorously developing the new energy business and further increasing the proportion of new energy customers. Among them, the revenue of new energy manufacturer T customers in 2022 has rapidly increased to 4% of the company's total revenue, making it the second largest customer. We believe that the company is actively adjusting production capacity, and overseas business is gradually being rationalized. In the future, with the company's further overseas business transfer and expansion, overseas revenue may reach an inflection point; at the same time, benefiting from the trend of electrification, the new energy business is expected to continue to contribute new business growth to the company.

Profit forecasting and valuation

Considering the increase in sales pressure from major customers, we lowered our net profit in 2023 by 18.4% to 1,186 million yuan, introducing net profit of 2024 of 1,407 billion yuan for the first time. The current stock price corresponds to 2023/2024 9.0 times/7.6 times P/E. Maintaining outperforming industry ratings, we simultaneously lowered our target price by 13.5% to 16.00 yuan, corresponding to 11.0/9.3 times the 2023/2024 P/E, which has 22.0% room for improvement compared to the current stock price.

risks

Overseas losses have widened, mass sales have declined more than expected, and product prices have declined.