Performance review
The company released 2022 & 1Q23 results, all slightly lower than market expectations
Revenue recorded in 2022 was 1,472 million yuan, +1.9% year on year; net profit returned to the mother was 211 million yuan, +5.9% year on year; after deducting non-net profit of 179 million yuan, +4.24% year on year. 1Q23 revenue was 379 million yuan, -7.4% year on year, -5.2% month on month; net profit of the mother was 43 million yuan, -47.1% year on year, -4.8% month on month; after deducting non-net profit of 39 million yuan, -49.8% year on year, +6.5% month on month. The 4Q22 epidemic was disrupted, downstream demand in the 1Q23 automobile industry was weak, and differential sales fell short of expectations, causing the performance to fall short of market expectations.
Development trends
Differential emissions hedged the decline in commercial vehicles, and the company's revenue continued to grow year over year in 2022. The company's revenue side increased slightly year-on-year in 2022. Among them, the differential business contributed mainly to the increase, and the aviation business and export business continued to grow steadily, but the decline in the commercial vehicle industry dragged down the total revenue. By business, 1) Synchronizer business: Dragged down by commercial vehicles and affected by the epidemic, revenue fell 17.3% year on year. The decline in gross margin was mainly due to a decrease in scale effects, and the proportion of commercial vehicle products with high profit margins declined; 2) Aviation business:
Revenue in 2022 was 190 million yuan, +40.0% year on year, and gross profit margin and net profit margin improved year on year; 3) Differential business: 2023 was the first year of the company's differential business. Total revenue fell short of market expectations due to factors such as the impact of the pandemic, and it is still in a state of loss.
It is proposed to issue convertible bonds to invest in the construction of motor shaft production capacity to support the continuous horizontal expansion of the NEV business.
At the same time, the company announced that it plans to issue convertible bonds to raise 550 million yuan for the construction of motor shaft production capacity for new energy vehicles. The company expects to reach an annual production capacity of about 2 million units after delivery. The company estimates that the financial internal rate of return for the project after tax is 12.21%. We believe that the layout of the motor shaft business will further support the company's horizontal expansion under the new energy trend.
Looking ahead to 2023, the profitability outlook is relatively conservative. Looking ahead to 2023, many of the company's business influencing factors are diverse: in terms of synchronizers, fuel vehicles account for a relatively high share of passenger car customers. Fluctuations in downstream demand bring uncertainty to revenue, but demand and export orders in the commercial vehicle industry are steady, medium and positive, which is expected to hedge against the adverse effects brought about by passenger cars; in terms of differentials, the company is still in a product release period this year, and downstream customers are of high quality, which is expected to drive the revenue side to continue to rise month-on-month. In terms of aviation business, we have an optimistic outlook. Orders are highly certain during the 14th Five-Year Plan period, which is expected to continue to drive revenue growth. In terms of profitability, the downstream price war in the automobile business is quite intense. We think suppliers may be under additional annual downward pressure, and the aviation business is also under price reduction pressure. Our outlook for overall profitability in 2023 is relatively conservative.
Profit forecasting and valuation
Considering the impact of the downstream price war on demand and profits, we lowered our 2023 profit forecast by 19.0% to $289 million, and introduced the 2024 profit forecast of $373 million. The current stock price corresponds to 2023/2024 15 times/11 times P/E. Maintaining an outperforming industry rating, the target price was lowered by 4.5% to 14.70 yuan using the SOTP valuation method, corresponding to 20x/16 times P/E in 2023/2024. There is room for an increase of 38.0% from the current stock price.
risks
The downstream price war in the automobile business affected profitability, and the volume of differentials fell short of expectations.