Results for the first half of 2023 fell short of market expectations. The company achieved current revenue of HK$5.21 billion, up 8% year on year; net profit to parent was HK$203 million, down 19% year on year. The net profit margin for the period was 3.88%, down about 1 percentage point from the previous year, and profitability declined. We believe that although the company's revenue has maintained steady growth, the company's profitability has declined markedly due to the price war between downstream car manufacturers and transmission of cost pressure to the upstream. Management believes that starting in the third quarter, the company's order prices will gradually return to normal, and that profit margins will rise once the rise in production capacity is completed. The company maintains its previously set target of double-digit growth for the whole year, while also expecting continued improvement in its performance in the next two quarters.
The performance fell short of market expectations, mainly due to product price reductions and production capacity climbing costs. According to management, automakers' price adjustments since the beginning of 2023 have directly led to a decline in the company's profit margin and inventory calculation losses. At the same time, changes in the customer order structure have also led to an increase in production capacity and climbing costs at the Chengdu base. If these effects are excluded, the company's profit for the first half of 2023 is close to the level for the full year of 2022.
The number of designated overseas customers has soared, becoming the main driving force for the company's future growth. Currently, BOE Precision's domestic revenue accounts for 71%, and the company expects the overseas revenue contribution ratio to rise to 50% by 2025.
The main reason for this is that the company's overseas designated models surged 40 times year on year in 2022, and still maintained a year-on-year growth rate of over 100% in the first half of 2023. Orders related to overseas designated models are expected to be gradually released starting in the first half of 2024, driving the company's total revenue to the level of HK$20 billion in 2025.
We have determined that the batch import of overseas orders will help the company ease the transmission of pressure from domestic car manufacturers to cut prices, and at the same time improve the company's overall profitability.
The buying rating was maintained and the target price was lowered to HK$13.2. Considering that the potential risk of price reduction pressure in the automotive market in 2023 has not been completely eliminated, we remain cautious about recovering the company's short-term profitability. We expect the company's earnings per share for 2023/24 to be HK$0.60/0.88, respectively, down 49.2/ 43.2% from previous forecasts. The target price was lowered to HK$13.20 (originally HK$23.8). Based on 15 times the 2024 price-earnings ratio, there is still a potential increase of 77%. We are still optimistic about the company's long-term development prospects and maintain our buying rating.
Risk warning: The pressure on automakers to cut prices continues; competition in the industry intensifies.