2022 results & 1Q23 results are in line with our expectations

The company announced its 2022 results: revenue of 3.717 billion yuan, +10.8% year on year; net profit of the mother was 211 million yuan, +3.4% year on year. The 2022 results were in line with our expectations. The company announced 1Q23 revenue of 997 million yuan, +19.2% year on year; net profit of the mother was 40 million yuan, +24.4% year on year. The 1Q23 performance was in line with our expectations.

Development trends

The pressure on raw material costs has abated, and profitability has gradually improved. The company's gross margin in 2022 was 11.6%, down from 13.6% in 2021. The main reason was the transmission of price increases for upstream raw materials and the impact of price increases for upstream materials such as copper and silicon steel. Looking at the gross margin for a single quarter, 1Q22, 2Q22, 3Q22, 4Q22, and 1Q23 were 10.1%, 12.4%, 10.6%, 13.2%, and 12.3% respectively. It can be seen that the company's gross margin in a single quarter showed a gradual recovery trend. We believe that as the prices of upstream commodities and the like gradually steadily decline, the company's gross margin is expected to continue to rise. Furthermore, the company's 4Q22 and 1Q23 revenue increased 23.6% and 19.2%, respectively. The revenue side growth rate was stable. We are optimistic that the gradual restoration of the company's profitability will boost performance and that performance will continue to improve in the future.

Focusing on the field of new energy vehicles, the electric drive business is developing rapidly. The company's traditional main business focuses on motor rotor fixing, and has achieved remarkable results in the field of new energy vehicle motors. Currently, the company's new energy vehicle motor products include fixed rotor cores and assemblies. As the terminal market continues to pursue the dynamic performance of vehicles, electric drive systems are developing towards integration and high power, and the proportion of dual-motor models is rapidly increasing, and the company's bicycle supporting value has risen from 500-800 yuan to 5,000 yuan. With the iteration of technologies such as oil-cooled motors and distributed drives, the manufacturing process threshold for fixed rotors and assemblies has been raised, and unit prices have shown an upward trend. At the customer level, the company is the core supplier of electric drive systems for Huawei cars, and its products cover Huawei partner car companies such as Xiaokang, Changan, and BAIC. Furthermore, as a new supplier to BYD, the company's on-hand orders have risen rapidly; the company has achieved mass production support for OEMs such as Geely, UMC, and Schaeffler, as well as Tier 1. We believe that with the continued rise in sales of new energy vehicles and the iteration of electric drive system technology, the company is expected to achieve rapid growth.

The two-wheeler business is expected to recover, and the battery structural parts business is expected to generate revenue in 1H23. The company's share of the motor fixed rotor market for electric two-wheelers in China is over 50%. The gradual recovery in economic production has led to an increase in sales of electric two-wheelers. The company established new business entities such as Xinzhi New Energy and Ningde Branch during the reporting period, and continued to increase the battery precision structural parts business. We believe that the development of the motorcycle rotor and battery precision structural parts business is expected to help the company's performance grow further.

Profit forecasting and valuation

Considering the pressure on vehicle sales, we lowered our 2023 net profit by 3.0% to 253 million yuan, and introduced 2024 net profit of 328 million yuan. The current stock price corresponds to the 2023/2024 price-earnings ratio of 21.2 times/16.3 times. Maintaining an outperforming industry rating, considering that the industry is still under pressure, the target price was lowered by 5% to 18.3 yuan, corresponding to the price-earnings ratio of 29.1 times/22.6 times in 2023/2024. There is room for an increase of 38.1% compared to the current 38.1% increase.

risks

Vehicle market sales fell short of expectations, new energy business expansion fell short of expectations, and cost control fell short of expectations.