1H23 performance is in line with our expectations

The company announced 1H23 results: income / return net profit / deduction non-net profit is 2.04 billion yuan, compared with the same period last year, + 30% 2Q23 income / return net profit / deduction non-net profit is 10.5 shock 1.1 / 110 million yuan, year-on-year + 64% 2Q23 "188% charge" 123%, quarter-to-quarter + 7% "2% charge" 9%. The return to home net profit / deduction of non-net profit is within the range of performance forecast, which is in line with our expectations.

Trend of development

Revenue and profit increased year-on-year thanks to the recovery of the commercial vehicle industry. The company is a leading supplier of crankshaft and connecting rod for commercial vehicles, and we estimate that the market share of heavy / light engine crankshafts of 1H23 company is 60% and 30%.

According to the data of the China Automobile Association, the cumulative sales of 1H23 domestic heavy truck / light truck industry are 489.935 million vehicles, which is + 29% and 10% compared with the same period last year. The company's crankshaft / connecting rod business income is 1.28 billion yuan, 39% compared with the same period last year, which outperforms the industry and shows its leading advantage. In addition, benefiting from the continuous growth of demand in overseas markets after the epidemic, the company's 1H23 export business income was 400 million yuan, + 39.5% compared with the same period last year, and the proportion of revenue was 19.8%.

Profitability has improved under the release of economies of scale, and 2H23 is expected to be maintained. 2Q23 gross profit margin of 26.3%, compared with the same month + 4.4pct/+2.2pct, mainly due to the release of economies of scale caused by upward product sales and dilution of fixed costs. 2Q23 net interest rate 10.2%, month-on-month compared with + 4.4pct/-0.5pct, month-on-month decline is mainly due to the increase in sales expenses, the overall trend is still good. The 2Q23 sales / R & D / management expense rate is 2.7%, 6.1%, 4.2%, respectively, compared with the same period last year-0.5/+0.3/-1.9pct, month-on-month + 1.8/+0.1/+0.2pct. The growth of sales revenue led to the increase of sales expense rate, and the R & D expense rate was maintained at a high level. Looking forward to the whole year of 2023, we expect the sales of domestic heavy truck / light truck industry to reach 85,200 million vehicles, an increase of 26% and 24% over the same period last year, and the company's 2H23 performance is expected to maintain a strong 1H23 performance.

New business type, such as air suspension and electronically controlled steering, advanced steadily to create the second growth curve. 1H23 air suspension business income 130 million yuan, + 29% year-on-year, accounting for 6.2% of the total revenue. According to the company announcement, the 1H23 air suspension business focuses on production line construction, market development, new product development and other work, and the holding subsidiary Tianrun Intelligence Control has completed 20 projects, 18 new product designs and 43 new product trial delivery. On July 20, the company announced and signed an agreement with Hannah Wandu (Suzhou) to jointly invest in the establishment of Tian run Wandu (Shandong) Automotive Technology Co., Ltd. (tentative name), the company holds a 60% stake in the joint venture company. The joint venture company will focus on the field of commercial vehicle steering system and develop vehicle electric steering system in sync with the mainframe factory.

Profit forecast and valuation

Maintain profit forecasts and outperform industry ratings. The current share price corresponds to the price-to-earnings ratio of 12.9 times the price-to-earnings ratio of 17.4 pounds in 2024, while we maintain the target price of 8.87 yuan, corresponding to the price-to-earnings ratio of 24.0 pounds in 2024, which is 17.7 times earnings, which has 37.5% upside compared to the current share price.

Risk

The production and sales of commercial vehicle industry is not as expected, the development of emerging business is not as expected, and customer expansion is not as expected.