Description of the event

Yihuatong achieved revenue of 738 million yuan in 2022, an increase of 17.28% over the previous year, Guimu's net profit loss of 166 million yuan, and Tongxiang lost 162 million yuan in 2021; Q1 of 2023 achieved operating income of 48 million yuan, a decrease of 50.16% over the same period last year. Guimu's net profit loss was 39 million yuan, and losses increased 23 million yuan in the same period last year.

Seasonal reviews

Products are still in the rapid selection period, and the sharp decline in unit prices is dragging down the increase in revenue. Policies related to hydrogen fuel cells continue to be implemented. In 2022, as the first year of demonstration application for fuel cell model cities, the industry is growing at a high rate. The company achieved a total sales power of 161.52MW of fuel cell systems in 2022, an increase of 175.73% over the previous year (market share rate first in the industry, 23.2%), driving the company's revenue growth. Among them, there was a big gap between the sales power growth rate and the company's revenue growth rate. The main reason was that fuel cell system products were in a period of rapid iteration and product prices dropped a lot. The average sales price of fuel cell systems in 2022 was 4.238 yuan/W, and the average price for the full year of 2021 was 8,843 yuan/W, a 52.1% drop in unit price. The reasons include 2021 procurement Expenses are high due to the large number of Toyota electric stacks. Furthermore, the localization of core components and the gradual increase in the scale of production and sales have led to a decrease in unit costs. In the future, it is expected that the decline in the unit price of product sales will be gradually reduced, and the high boom in the industry will gradually be reflected in the company's operating income and profit side. The company's poor revenue performance in 2023Q1 is mainly due to the fact that the industry is in the early stages of industrialization, Q1 is a low season for the industry, and there are large fluctuations between quarters.

The company's comprehensive gross margin increased slightly, and the gross margin of the fuel cell system remained stable. In 2022, the company's comprehensive gross margin was 38.4%, an increase of 0.52 pct over the previous year. The main thing is that revenue from the low-margin parts business, technology development and service business declined. The gross margin of the company's core business, fuel cell systems, was 40.0%, down 0.42 pct from the previous year, which remained stable. If we consider that in 2021, the gross margin of fuel cell systems was clearly questionable due to the purchase of more third-party electric stacks due to orders related to Dongmi, a certain decline in the long term. Looking at it, as the industry expands and competition intensifies, gross margin may still show a slow downward trend.

Higher expenses and asset depreciation continue to drag down profits. Currently, the fuel cell industry is in the early stages of promotion. The company's R&D investment is high. The company's cost rate during 2022 was 56.00%, an increase of 11.41 pct over the previous year. Among them, management and R&D expenses reached 42.52%, an increase of 6.2 pct over the previous year, which is the main increase. The reason is that the company continues to introduce professionals from various fields to raise the level of its talent team (R&D personnel increased 24.3% to 317). Furthermore, the company completed the issuance of H shares in 2022, and listing expenses also dragged down on 2022 performance. Credit impairment losses amounted to $31 million, mainly accrued from accounts receivable and part of the inventory.

It is expected that the promotion of fuel cell vehicles will continue to accelerate their release. The five major model cities in 2023 have already entered the second-year demonstration promotion period. It is expected that markets such as Hebei and Henan, which were relatively slow to promote during the first-year demonstration period, will accelerate their release, and fuel cell promotion volume in Beijing is also expected to maintain a high increase. Looking ahead, we believe the company will still benefit from the high increase in the fuel cell industry: 1) the installed capacity of trucks reached 73.7% in 2022, which means that the economy is gradually being accepted by the market; 2) the installed value of bicycles continues to improve, and product performance continues to improve. In addition, the company's subsidiary signed a procurement contract with Yutong Group, agreeing that Yutong Group will purchase 500 fuel cell engines and related materials from Yihuatong in 2023, which is expected to provide some support for the company's future performance.

The company's revenue for 2022-2023 is expected to be 930 million yuan and 1.28 billion yuan respectively, maintaining the “buy” rating.

Risk warning

1. Risk of product substitution due to technological upgrading; 2. Risk of inventory impairment and bad accounts receivable.