Reversing losses in 1Q23, optimistic about full-year results
Aiko Lan achieved revenue/net profit of 816 million yuan/-10.54 million yuan in 2022, -6/ -115% year on year. Return to Mother's net profit was in line with the performance forecast; 1Q23 revenue/net profit of Fumo was 246 million yuan/8.35 million yuan, +7/ -36% year on year. The company recorded losses from 3Q22 to 4Q22. 1Q23 turned a loss into a profit, and the profit trend improved.
We lowered the sales volume of domestic six standard gasoline and diesel engine aftertreatment products and the gross margin forecast for diesel engine products. The estimated net profit for 23-25 was 0.89/203/332 million yuan (previous value: 1.26/256/100 million yuan). The company took the lead in market development and technology research and development, and had high performance flexibility, giving 33.2x PE in 2023 (with reference to the comparable company's 2023 Wind, where the average PE value is 27.7x). The target price is 36.85 yuan/share (previous value: 29.70 yuan/share, based on 2023) 18.8x PE), maintaining a “buy” rating.
The commercial vehicle industry is sluggish, and profitability is declining in stages
According to statistics from the China Association of Automobile Manufacturers, China's commercial vehicle production and sales in 2022 were 319.3.3 million units respectively, down 31.9/ 31.2% from the previous year. Among them, production and sales of light diesel trucks were 8813/936,600 units respectively, down 32.7/29.7% from the previous year. The company's annual revenue was -6% year on year, gross margin was -6.0pp to 17.1% year on year, and net profit was -10.54 million yuan (2021:69.67 million yuan). The main reasons were: 1) the parent company's revenue was -25% year on year due to the decline in commercial vehicle production and sales; 2) the increase in raw material procurement costs. The large-scale effect of Guoliu diesel engine products was not fully reflected. The proportion of self-produced parts was lower than the middle to late stage of the country's fifth stage, leading to an increase in gross margin of 6pp over the same period; 3) the increase in R&D expenses during the period was +59% to 7,563 yuan. Mainly due to on-hand development There are many projects, and the parent company has increased investment in R&D.
Expect an increase in product sales from Country 6 and African Country 4
The company's main products are national six standard gasoline and diesel engine aftertreatment products. At the same time, it is actively developing the post-processing market in the hybrid field. According to the China Association of Automobile Manufacturers and the company's annual reports, the market share of the company's products in light diesel trucks was 17.00%, an increase of 4.09 pct over the previous year. The company is leading in market development and technology research and development. Although its short-term performance has been dragged down by the slump in the downstream automobile industry, we believe that after downstream demand recovers, the company's six products are expected to achieve rapid growth. In addition, the four non-road national standards were implemented in December 2022. In the non-road field, the company has carried out project cooperation with many leading customers such as Quanchai Power and achieved batch delivery. The non-road market space is broad.
The target price is 36.85 yuan/share, maintaining the “buy” rating
As downstream commercial vehicle production and sales volume fell short of expectations, and the large-scale effect of raw material procurement was weaker than expected, we lowered the sales volume and gross margin forecast for diesel engine products in China's six standard gasoline and diesel engine products. We expect EPS for 23-25 to be 1.11/2.53/4.14 yuan, giving 33.2x PE in 2023, with a target price of 36.85 yuan/share (previous value: 29.70 yuan/share, based on 18.8x PE in 2023), maintaining the “buy” rating.
Risk warning: The rise in prosperity in the commercial vehicle industry fell short of expectations, sales of non-road products fell short of expectations, and the localization process of diesel engine products in Country 6 fell short of expectations.