Description of the event
Yihuatong achieved operating income of 154 million yuan in the first half of 2023, down 42.96% year on year, net profit loss of 77 million yuan, loss increased by 60 million yuan in the first half of 2022; Q2 in 2023 achieved operating income of 105 million yuan, down 38.90% year on year, net profit loss of 38 million yuan, loss of 38 million yuan in the same period last year, loss of 37 million yuan, a slight increase in losses.
Incident comments
The fuel cell industry is in the early stages of commercialization, and business performance is highly volatile. The main reasons for the company's revenue decline in the first half of the year are:
1) Policies related to hydrogen fuel cells continue to be implemented. 2022 is the first year of fuel cell demonstration applications as a fuel cell demonstration city, and the industry growth rate is high, but overall, the current development of the industry is still immature and is more dependent on government funding and incentives. This year, local government financial pressure is high, which has led to a certain impact on fuel cell vehicle promotion progress; 2) Beijing is one of the company's main market regions. Last year, demand for fuel cell vehicles was released a bit, but this year demand has declined slightly, which is also a drag on performance; 3) The fuel cell industry is in the early stages of commercialization, mainly Product sales and revenue recognition were concentrated in the fourth quarter, resulting in large fluctuations in revenue in the first three quarters.
The company's overall gross margin has declined, and the cost ratio has increased significantly due to the decline in revenue. In the first half of 2023, the company's comprehensive gross margin was 36.64%, down 2.72 pct from the previous year. In the long run, with the expansion of the industry, gross margin may still show a slow downward trend. Higher costs and asset impairment continue to weigh on profits. Currently, the hydrogen fuel cell industry is in the early stages of promotion. The company's R&D investment in the first half of the year was 118.22%, an increase of 52.57 pct over the previous year. Among them, the management and R&D expenses rate reached 112.48%, an increase of 58.46 pct over the previous year. Mainly, there was a decline in shipment volume in the first half of the year, a significant decline in revenue, while R&D investment and management expenses were rigid. Judging from absolute values, the company's R&D investment in the first half of the year was 77 million yuan, a year-on-year decrease of only 2.54%. In the first half of the year, the company confirmed asset impairment losses of $24 million and credit impairment losses of $14 million, which also hampered performance.
The research project is aimed at core components. R&D project investment in the first half of the year In addition to investing heavily in electric stack product development and domestic fuel cell system R&D, the company also invested 9.5586 million yuan in forward-looking technology research, focusing on fuel cell system common technology, underlying pillar technology, and basic scientific research, indicating that the company's key research and development direction has gradually transitioned from engine systems to core components and material products, further consolidating the company's core barrier advantages.
We expect the promotion of fuel cell vehicles to continue to accelerate their release. The top five model cities in 2023 have already entered the second year of demonstration promotion. It is expected that markets such as Hebei and Henan, which had a relatively slow promotion rate during the first year of the demonstration period, will speed up release. Looking to the future, we believe the company will still benefit from the high growth in the fuel cell industry: 1) trucks accounted for 73.7% of the installed capacity in 2022, which means that economy is gradually being accepted by the market; 2) the installed power of bicycles continues to increase, 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 support the company's future performance.
The company's revenue for 2023-2024 is expected to be 930 million yuan and 1.28 billion yuan respectively, maintaining a “buy” rating.
Risk warning
1. Product iteration risk due to technological upgrades; 2. Risk of inventory impairment and bad accounts receivable.