Event: Huaan Xinchuang released its 2022 annual report and 2023 quarterly report. In 2022, the company achieved operating income of 890 million yuan, +22.83% year on year; achieved net profit of 465.701 million yuan, -14.65% year-on-year, net profit of 378.445 million yuan after deduction, +6.89% year on year. Among them, the fourth quarter of 2022 alone achieved operating income of 260 million yuan, +102.37% year on year and +10.08% month on month; net profit returned to the mother was 6.5362 million yuan, -57.68% year on year and -55.44% month on month. The first quarter of 2023 achieved operating income of 302 million yuan, +84.27% year on year; net profit of the mother was 5.7614 million yuan, +5.16% year on year.
The 2022 results were in line with expectations, investment in R&D continued to increase, and plant construction progressed steadily: the 2022 full-year results were in line with expectations. Currently, the company is accelerating the pace of transformation from Tier 2 to Tier 1: (1) Continuously increasing R&D investment: the company's R&D expenditure rate in 2022 was 4.30%, compared to +1.32pct, and the R&D cost rate in the first quarter of 2023 further increased to 4.81%, a record high. At present, the company's module plan equipped with Mini LED backlight technology has completed pre-mass production preparations, and development of a high-end screen technology integration scheme has also begun. (2) Accelerate production capacity construction: In 2022, the company started construction of an intelligent manufacturing plant in Nantong, increasing investment in space and equipment. The book value of fixed assets at the end of the period was 484.378 million yuan, an increase of 80.94% over the beginning of the period. The number of projects under construction in Q1 2023 was 806.936 million yuan, an increase of 272.41% over the beginning of the year. After the factory is completed, the company will have integrated delivery capabilities from raw materials to the front-end glass process, backlight assembly, module bonding, and complete assembly. Compared with traditional manufacturing processes, it can reduce logistics, process management and operation costs to a large extent, ensure smooth supply chain links, improve production efficiency and quality, fully meet the different needs of downstream customers for vertical integration of the supply chain, and have the ability to respond quickly to the market.
Revenue increased sharply in the first quarter of 2023, and abundant on-hand orders laid the foundation for high performance growth: According to the company announcement, between August 5, 2022 and April 25, 2023, the company received 20 fixed intent letters from Tier 1 and OEMs, adding a total fixed amount of about RMB 5.7 billion. At present, the company's total order amount is 13.5 billion yuan (of which the amount of mass-produced projects is about 8.8 billion yuan and the amount of designated unmass-produced projects is about 4.7 billion yuan). Assuming the four-year project cycle, it is estimated that it can bring a revenue contribution of 3.4 billion yuan per year. It is optimistic that the company's Tier 1 orders will drive performance into a period of rapid growth after large-scale mass production.
Investment advice: Buy an -A investment rating and give the company a 30-fold valuation in 2024, with a target price of 50.81 yuan for 6 months. Taking into account factors such as the weakening of demand in the automotive industry since the beginning of the year and increased competition from OEMs and suppliers, we lowered our previous profit forecasts. The company's revenue for 2023-2025 was 1.34 billion, 2.0 billion, and 2.7 billion, respectively; net profit was 81 million, 136 million, and 213 million respectively; the corresponding valuations were 34X, 21X, and 13X, respectively.
Risk warning: The shortage of cores in the automotive industry has intensified; the progress of production capacity investment has fallen short of expectations.