1H23 performance is slightly lower than we expected.

The company announced 1H23 results: revenue of 3.351 billion yuan, an increase of 6.7% over the same period last year, and net profit of 222 million yuan per share, corresponding to 0.86 yuan per share, an increase of 12.7% over the same period last year, deducting 191 million yuan of non-return net profit, an increase of 1.9% over the same period last year, and the performance was slightly lower than we expected In a single quarter, 2Q23 revenue was 1.661 billion yuan, up 12.3% from the same period last year, and the net profit from home was 118 million yuan, down 5.8% from the same period last year. The net profit from non-return was 121 million yuan, down 8.9% from the same period last year. The performance was slightly lower than we expected, mainly because the exchange earnings were less than last year.

Gross profit margin rose sharply in the second quarter, while net profit margin fell compared with the same period last year. 1H23/2Q23 's comprehensive gross profit margin increased by 3.8/4.4ppt to 22.3% and 24.1% compared with the same period last year, mainly due to lower raw material costs and improved product structure. The rates of sales, management and R & D expenses of 2Q23 increased by 0.4 / 0.9 / 0.4ppt respectively compared with the same period last year. Affected by the decline in exchange gains from changes in foreign currency exchange rates, the 2Q23 financial expense rate increased by 3.4ppt to-0.2% dagger 2Q23 company net profit fell 1.4ppt to 7.1%.

Orders on hand declined and there was a net operating cash outflow. By the end of the 1H23 period, the company's contract liabilities were 2.542 billion yuan, down 104 million yuan from the beginning of the year. The net cash outflow from 1H23's operating activities was 125 million yuan, mainly due to a decrease in contract advance, with a net inflow of 16 million yuan in the same period last year.

Trend of development

The company develops the cart strategy, and we expect the company's forklift business to benefit from the development of lithium electrification of forklift trucks.

At present, the export of forklift trucks has maintained growth, and domestic sales have recovered. We expect that the development of lithium electrification of heavy forklift trucks is expected to enhance the overseas competitiveness of Chinese forklift enterprises. The company started as eight types of forklifts, and then expanded its business to three types of forklifts. In recent years, the company has developed a large truck strategy to expand to Class I and Class II forklifts. We estimate that the first and second class forklift trucks of the company will achieve an operating income of about 500 million yuan in the first half of the year. Looking forward, with overseas enterprises accelerating the transformation of lithium electrification and considering the obvious advantages of China's industrial chain, we believe that overseas enterprises may choose to seek a business model of contract manufacturing cooperation with Chinese enterprises, while the company starts with contract manufacturing. and actively enhance the manufacturing capacity of large cars, we believe that the company is expected to fully benefit from this potential industrial trend.

The rapid expansion of the lithium industry has come to an end, and intelligent logistics has entered the delivery period. With the slowdown in the expansion of lithium power plants, we expect the order size of Wuxi Zhongding to decline and the higher stock orders to enter the delivery period. Considering the low business profit margin, we expect the overall impact of changes in industry climate on the company is relatively limited. We expect the company to continue to improve internal governance and improve the steady-state profit level of the business.

Profit forecast and valuation

Taking into account the decline in exchange rate exposure, we lowered our 24-year profit forecast for 2023 11.6x/9.8x by 7.2% to 5.6% to 460, 000. Taking into account the profit reduction, we lowered the target price by 10% to 25.20 yuan, corresponding to the 2023 14.2x/12.0xP/E 2024, with 22% upside space to maintain the outperform industry rating.

Risk

The penetration rate of electric forklifts is lower than expected, the price of raw materials is higher than expected, and the demand for overseas forklifts is declining.