Description of the event

The company published the first quarter report of 2023. In the first quarter of 2023, the company achieved operating income of 980 million yuan, an increase of 5.9% over the previous year, and achieved net profit of 100 million yuan to the mother, an increase of 11.9% over the previous year.

Incident comments

The heavy truck industry rebounded steadily in the first quarter, and the company's revenue entered an upward channel. The company achieved revenue of 980 million yuan in the first quarter, up 5.9% year on year and 24.0% month on month. The growth rate changed from negative to positive. According to the calculation of preparing parts one month in advance, sales of heavy trucks were 180,000 units from December 2022 to February 2023, a year-on-year decline of 15.2%. The company's revenue growth rate was better than that of the industry. Mainly due to the increase in heavy truck boom month by month, downstream customers prepared production ahead of schedule. The growth rates of heavy truck sales in January-March 2023 were -48.9%, 30.2%, and 50.4% respectively. Diversified markets and new businesses also contributed: the company's business included shafts and connecting rods, and downstream crankshaft application scenarios included multiple uses such as medium and heavy trucks, light trucks, and off-road applications. In 2022, the company developed a total of 27 new customers including Changchai, Yuchai, Jiangxi Isuzu, ASIMCO, and Yuchai Marine Electric, and completed the development of 101 new crankshafts, connecting rods, castings and forgings from OEMs such as Cummins and Weichai.

The recovery in revenue has led to increased profitability. In the first quarter, the company achieved net profit of 100 million yuan to the mother, an increase of 11.9% over the previous year and an increase of 150.0% over the previous month. The net interest rate of Gimu was 10.7%, returning to more than 10%. The company's gross profit margin in the first quarter was 24.1%, an increase of 0.7 pct over the previous year and an increase of 3.5 pct over the previous quarter. After the revenue scale rebounded, costs improved markedly. In terms of the fee rate, the fee rate increased 0.4 pct year on year during the first quarter and remained stable. Apart from the 0.5 pct increase in the financial fee rate, interest expenses increased mainly due to the increase in loan interest rates and discount rates for the current period compared to the same period last year.

Affected by sector sentiment, Tianrun Air Suspension business revenue fell short of expectations in 2022, but as sector sentiment picked up, the company benefited from increased industry penetration and increased share of independent components with its competitive strength in product and R&D. It is expected to usher in rapid growth and launch employee stock ownership plans to stimulate employee vitality. Influenced by sector sentiment in 2022, Tianrun Air Suspension received 200 million yuan, a year-on-year decline of 3.4%. However, in the same year, Tianrun Intelligent Control Company successfully developed 13 new customers, completed 44 new product development for air suspensions and related components, and completed the construction of rubber suspension assembly lines, new control valve component processing and assembly lines, and semi-trailer suspension assembly lines, laying the foundation for subsequent business expansion. The company released a draft employee plan. It is estimated that the total number of participating employees will not exceed 244 (excluding reserved shares). The maximum amount of capital to be raised is 584.34 million yuan, and the price of shares to be repurchased by the transferred company is 2.73 yuan/share. The assessment years are the two fiscal years 2023-2024. The assessment indicators are: based on 2022, the net profit growth rates of Gumo in 2023 and 2024 are 100%, 200% (Japanese standard value), 80%, 160% (trigger value), respectively. The actual number of equity attributable to participants working for the second main subsidiary in that year is linked to the completion of the performance evaluation indicators of the subsidiary to which they belong and the individual performance evaluation results. Taking April 25, 2023, the closing price of the company's stock at 5.05 yuan/share as a reference, the company should confirm that the total cost is expected to be 49.6582 million yuan. Investment suggestions: the main business is expected to bottom out, intelligently drives high-end allocation, and the company will start a second main business. Currently, the overall boom in the commercial vehicle industry is picking up, and the growth rate of heavy truck sales in February has been corrected. Relying on the rich experience accumulated by technical cooperation personnel, Tianrun Industrial has independent control strategies, complete testing capabilities, and the ability to provide key components and systems, and its market share is expected to increase. The company's main business is relatively stable, and the gap opens a second growth curve. The company's net profit for 2023-2025 is expected to be 4.81, 676, and 813 million yuan. The corresponding PE is 13.53X, 9.63X, and 8.00X, giving it a “buy” rating.

Risk warning

1. Due to macroeconomic influence, demand for commercial vehicles has declined;

2. The growth rate of the air suspension business fell short of expectations.