[Matters]

Recently, the company released an express production and sales report for February 2023. Automobile products sold 60037 units this month, +59.6% year on year; in January-January, the cumulative sales volume was 91,637 units, +15.9% year on year; engine products sold 26,868 units this month, +53.2% year on year.

[Comment]

The share of the light truck market has increased significantly, and industry recovery is expected to fully benefit. Judging from the sales structure, light trucks account for 68.0% and heavy trucks 20.6%, which is the main force contributing to the company's sales volume. By model, light truck sales were 40,843 units, 63.6% year on year, with a cumulative total of 60,514 units in January-January, +13.2% over the same period; according to truck information network data, the national light truck sales volume in February was 176,700 units, +43.2% year on year, and the cumulative sales volume of light trucks in January-February was 265,900 units, -6.9% year on year. Based on this calculation, the market share of Fukuda light trucks in February was 23.1%, an increase of 5.4 pct over the 17.7% share in February 2022. As the economy recovers and logistics demand picks up, it is expected that sales in the light truck industry will gradually recover in 2023. As a light truck leader, and the company's market share is gradually expanding, it is expected that it will fully benefit.

The same ratio for medium and heavy trucks first became positive, and the market share is expected to continue to expand. Heavy trucks sold 12,392 units, 35.2% year on year, with a cumulative total of 20,303 units in January-January, +5.9% over the same period; according to truck information network data, the number of medium and heavy trucks sold in February was 85,800 units, +21.7% year-on-year, and 125,900 units in January-January, a year-on-year ratio of -28.2%. Based on this calculation, the market share of Fukuda Heavy Trucks in February was 14.4%, up 1.4pct from 13.0% in the same period last year. With sales in the medium and heavy truck industry falling year-on-year in January-January, the company took the lead in completing a year-on-year correction. With the recovery of the heavy truck industry in mid-2023, the company is expected to continue to expand its share in the medium and heavy truck sector, and related performance is highly flexible.

The year-on-year increase in light passenger and new energy is expected to boost the company's profits. The number of buses sold was 6,401 units, 103.7% year on year, with a cumulative total of 9974 units in January-January, +75.9% year on year. Among them, Light Bus sold 5,527 units in February, +104.6% year on year, with a cumulative total of 8,523 units in January-January, +79.4% over the same period last year. According to the company's 2021 report, the gross profit margin of light passenger products in 2021 was 18.9%, making it the company's highest gross margin product. In addition, the company's overall sales volume of new energy vehicles was 2,539 units, +240.8% over the same period last year, with a cumulative total of 3889 units in January-January, and +136.6% year-on-year. Higher sales of high-margin products and new energy products are expected to boost the company's profits.

The establishment of a joint venture with Ningde Times to lay out battery leasing is expected to further boost new vehicle sales.

In December 2022, the company announced that it will invest 100 million yuan each to establish a joint venture with Ningde Times, with a shareholding ratio of 50%. The scope of the joint venture will focus on the new energy truck battery leasing business. Through battery leasing, “vehicle electricity separation” can be achieved to meet the needs of car owners to improve operating efficiency and reduce vehicle purchase costs. It is expected to promote new vehicle sales, open up the operating market for new energy scenarios, and gain a higher market share; at the same time, it is conducive to controlling battery resources and establishing a core competitive advantage.

[Investment advice]

Company profit forecast and investment ratings: In the short to medium term, the economy gradually recovers after the pandemic, logistics demand picks up, and overall consumer demand for trucks is expected to pick up. As the company's market share in the light truck and medium to heavy truck sector continues to rise, performance is expected to resonate. The company's revenue for 2022-2024 is estimated to be 460.15, 568.08 and 69.406 billion yuan respectively. The net profit attributed to the mother is 0.56, 15.62 and 2,469 billion yuan respectively. The corresponding EPS is 0.01, 0.20 and 0.31 yuan respectively, and the corresponding PE is 501.8, 18.0 and 11.4 respectively, giving an “increase in holdings” rating.

[Risk Reminder]

Commercial vehicle market recovery falls short of expectations

Raw material costs fell short of expectations

The progress of the battery leasing business fell short of expectations