1H23 results were slightly lower than our expectations

The company announced 1H23 results: revenue of 679 million yuan, which is basically the same as last year, and net profit of 69 million yuan from the previous year, down 15.3% from the previous year, corresponding to earnings per share of 0.18 yuan. The performance was slightly lower than our expectations.

In 2Q23, the company's revenue was 360 million yuan, down 4.9% year on year, and net profit was 34 million yuan, down 21.0% year on year.

Demand for rail traffic has declined, and the growth rate of the NEV business has slowed down. In 1H23, the company's rail transit and industrial sector revenue was 311 million yuan, down 11.5% year on year, and vehicle and energy information business revenue was 333 million yuan, up 11.5% year on year. Among them, the NEV charging business achieved revenue of 305 million yuan, an increase of 15.8% year on year. In 1H23, the company's comprehensive gross margin decreased by 1.4ppt to 30.4% year on year. Among them, the gross margin of the rail transit and industrial business decreased by 2.5ppt to 40.5% year on year, and the gross margin of the vehicle and energy information business decreased by 1.13ppt to 18.9% year on year.

Expense rates remained the same year on year, and profit margins declined slightly. The cost rate for the company period was the same year on year in 1H23. Among them, the sales expense ratio increased by 1ppt to 7.3% year on year, and the management and financial expenses ratio decreased by 0.4/0.6ppt to 6.1%/-2.2% year on year. The company's net profit margin fell 1.8ppt to 10.2% year-on-year in 2023.

Development trends

Railway passenger traffic has improved, and the travel boom has recovered. China Railway Group plans 2,500 kilometers of new high-speed rail lines in 2023, up from 2082 kilometers completed in 2022. At the same time, passenger traffic has recovered significantly. According to data from the National Bureau of Statistics, China's railway passenger traffic from January to June 2023 was 1.77 billion, an increase of 125% over the previous year, which is basically equivalent to the level of passenger traffic in the first half of 2019. We believe that since peak travel periods such as the National Day holiday and Spring Festival are approaching, the trend of improving railway passenger traffic is expected to continue. At the same time, it is also expected to drive an increase in rail transit vehicle usage rate and procurement demand. The company's rail transit business is expected to benefit from this.

Demand for new energy is steady, and the company's charger development is smooth. According to data from the China Automobile Association, in January-July 2023, production and sales of new energy vehicles completed 4.591 million units and 4,526 million units respectively, up 40% and 41.7% year-on-year respectively. A steady increase in demand for new energy vehicles will drive the development of ancillary products. At the end of May 2023, the company obtained the international market supply qualification for liquid-cooled CCS2 charging guns. The company's European standard AC guns, European standard DC guns, and liquid-cooled European standard DC guns have all obtained corresponding certifications. We are optimistic about the development of the company's rechargeable gun business.

Profit forecasting and valuation

As the company's rail trading business continues to be under pressure, we lowered the 23/24 EPS by 8.2%/12.3% to 0.48/0.56 yuan, corresponding to the 2023/24 P/E 26.9/22.9x. Due to the upward shift in the valuation center, the company's target price was maintained at 15.7 yuan, corresponding to the price-earnings ratio of 32.9/28.0x in 2023/24, and there is 22.2% upward space compared to the current stock price.

risks

Overseas business development fell short of expectations, rail transit recovery fell short of expectations, and new product development was slow.