Incidents:
Hechuan Technology released its 2022 annual report and the first quarter report of 2023: it achieved operating income of 944 million yuan in 2022, +25.66% year on year; achieved net profit of 90 million yuan to the mother, -17.85% year on year; net profit after deducting non-return to the mother was 80 million yuan, -19.79% year-on-year. The first quarter of 2023 achieved operating income of 276 million yuan, +44.38% year on year; achieved net profit of 21 million yuan, +8.47% year on year; net profit of non-return mother was 119 million yuan, -2.68% year on year.
Key points of investment:
Profit declined year over year in 2022 due to multiple factors. The company's operating income and net profit in 2022 were +25.66% and -17.85%, respectively. The annual revenue growth was rapid. The year-on-year decline in net profit of Gumo was mainly due to: 1) the company's customers were concentrated in the new energy sector, and product sales prices declined in order to quickly enter the market; 2) the rise in raw material prices was compounded by product renewal and replacement, and gross margin declined. The operating income and net profit of the 2023Q1 company were +44.38% and +8.47%, respectively. The year-on-year growth rate of Guimo's net profit was corrected.
The improvement in 2023Q1 profit margin levels is significant. Judging from profitability, the company's gross profit margin in 2022 was 30.44%, -6.03pct year on year, net profit margin was 9.57% year on year, -5.07pct year on year. Profit margins were under pressure in the short term. The gross profit margin of 2023Q1 company was 28.99%, -3.28pct year on year, +5.33pct month-on-month, net profit margin was 7.80%, year-on-year -2.59pct, +7.57pct month-on-month. The profit margin level improved significantly. Judging from the cost rate, the company's sales, management, R&D, and financial expenses in 2022 were -0.64 pct, -0.53 pct, -0.48 pct, and -0.55 pct respectively, and the overall period cost rate was -2.20 pct compared to the same period.
PLC sales grew rapidly, and convertible bond plans led to new growth points. In 2022, the company's servo system revenue was 758 million yuan, +14.98% year on year, sales volume 1,530,500 units, +19.57% year on year; PLC revenue was 121 million yuan, +203.71% year on year, sales volume was 253,300 units, +114.76% year on year, and both sales volume and sales revenue increased rapidly. In April 2023, the company issued a convertible bond plan, which plans to raise no more than 750 million yuan to be used for “R&D and industrialization projects for efficient industrial transmission systems and precision transmission components”, “micro photovoltaic (energy storage) inverter R&D and industrialization projects” and supplementary working capital. It is expected that convertible bond financing will enhance the company's product strength in transmission components, photovoltaic inverters, etc., and further strengthen the driving force for the company's performance growth.
Profit forecasting and investment ratings Taking into account the increase in the company's capacity utilization rate after the resumption of work and production, we adjusted the company's profit forecast. It is estimated that the company will achieve revenue of 14.27, 19.35, 2,594 million yuan in 2023-2025, with a year-on-year growth rate of 51%, 36%, and 34%; achieving net profit of 1.65, 2.50, and 360 million yuan, the year-on-year growth rate of 82%, 52%, 44%. The current price corresponds to PE30.7, 20.2, 14.1 times. Considering the recovery of the manufacturing cycle, the company's “increase” rating is maintained. (Based on the principle of prudence, convertible debt matters are not included in profit forecasts)
Risks suggest that the automation process has fallen short of expectations; the pandemic has repeatedly affected downstream construction; the recovery of the manufacturing industry has fallen short of expectations; market competition has intensified; the prosperity of the new energy industry has fallen short of expectations; and uncertainty about the proposed issuance of convertible bonds and the progress of fund-raising projects.