Event Overview:
Recently, the China Automobile Association released the April heavy truck sales data. The monthly output of China's heavy truck industry in April 2023 was 85,800 vehicles, an increase of 101% over the previous year. The cumulative production of heavy trucks in January-April was 331,000 units, an increase of 18% over the previous year. We believe that Hongquan IoT, as a leading enterprise in intelligent connectivity for commercial vehicles in China, is expected to continue to benefit from the recovery of the industry.
Constrained by multiple adverse factors, 2022 results are under significant pressure
According to the annual report, the company's performance in 2022 was under heavy pressure. Revenue fell 40.9% year on year, and the profit side changed from positive to negative to -106 million yuan. We believe that the decline in the company's revenue side is mainly due to the commercial vehicle industry being at a cyclical bottom. According to statistics from the China Automobile Association, in 2022, commercial vehicle production and sales were 3.185,000 units and 3.3 million units respectively, down 31.9% and 31.2% from the previous year. Among them, the annual sales volume of heavy trucks was only 67.2 million units, down 51.8% from 2021 and 58.6% from 2020. However, the company's main revenue comes from front-loading, which is highly correlated with the production and sales volume of downstream customers, so the decline in production and sales of commercial vehicles, especially heavy trucks, has had a significant adverse impact on the company's revenue. Furthermore, the company's shortage of chips and other materials in the industry, increased procurement, continued digestion of high-priced material reserves, and continued investment in R&D expenses to develop new businesses all put great pressure on net interest rates, which in turn led to a shift in profit from positive to negative in 2022. All in all, the company was constrained by multiple adverse factors in the industry and its own in 2022, and its performance was under significant pressure.
The 23Q1 recovery trend is good, and the equity incentive target shows confidence
2023Q1 achieved revenue of 85 million yuan, an increase of 23.1% over the previous year. The single-quarter growth rate was corrected for the first time since 2021, confirming the boosting effect of the recovery in downstream heavy truck sales on the company's revenue side. We expect that as commercial vehicle production and sales, represented by heavy trucks, gradually pick up, and new products such as new national standard driving recorders, T-boxes, and body controllers will gradually enter the mass production stage, the company's performance is expected to continue to recover in 2023. It is worth noting that the company released an equity incentive plan in September 2022:1) The performance assessment target for the controller team was (calculated in grade A), and the 2023/2024 Beijing Yubo (controller subsidiary) achieved revenue of 50,000/80 million yuan respectively; 2) The assessment target for the remaining incentive targets was (calculated based on grade A), and the company's net profit after deducting non-return parents in 2023/2024/2025 was not less than 0.32/0.60/120 million yuan, respectively. While stabilizing the core team, it also showed that the company's net profit for future generations was not less than 0.32/0.60/120 million yuan respectively. While stabilizing the core team, it also showed that the company's future growth was not less than 0.32/0.60/120 million yuan, respectively. Increased confidence over the year.
Controller products are progressing smoothly, and the second growth curve is gradually becoming clear
According to the annual report, the company's new business line of business, the controller business generated revenue of 2.178,500 yuan for the first time in 2022. Among them, controller projects for commercial vehicles have gradually entered the mass production stage, including products such as body controllers, door controllers, air conditioning controllers, and gateways. At the same time, the company is also developing thermal management controllers, seat controllers, refrigerator controllers and other products for new energy passenger vehicles. Among them, thermal management controllers have already been developed, and mass sales are expected in 2023Q2. We believe that the company's new business, represented by controllers, is expected to make great strides in 2023, and the second growth curve will gradually become clear.
Investment advice:
The company is a leading enterprise in intelligent networking for commercial vehicles in China. It is deeply involved in front-loading, has a rich product range, and high-quality customer resources. Currently, the commercial vehicle industry is gradually picking up, and the company's new business, represented by controllers, is also gradually developing, which can be expected in the future. We expect the company's revenue to be 49/694/908 million yuan in 2023/2024/2025, respectively, and net profit of 0.37/0.86/135 million yuan respectively. This was covered for the first time, giving an investment rating of increasing holdings - A. Considering that the company is still in a performance recovery period in 2023, we gave a target price of 30.1 yuan for 6 months, which corresponds to PE 35 times 2024.
Risk warning: 1) Relevant industrial policies fell short of expectations; 2) commercial vehicle sales fell short of expectations; 3) the development and commercialization of new technologies such as the Internet of Vehicles fell short of expectations; 4) Raw materials were out of stock and prices increased.