3Q23 performance fell short of our expectations
The company announced 1-3Q23 results: revenue of 2.55 billion yuan, a year-on-year increase of 34.9%, net profit of 250 million yuan, a year-on-year increase of 34.8%. The performance fell short of our expectations, mainly due to the slowdown in production expansion by downstream manufacturers. Looking at a single quarter, 3Q23 revenue was 850 million yuan, down 5.9% year on year, and net profit was 53.51 million yuan, down 54.3% year on year.
Gross profit margin and net interest rate declined year over year. The consolidated gross margin of 1-3Q23/3Q23 companies was 33.8%/30.2%, respectively, a year-on-year decrease of 2.1ppt/ 4.7ppt. We estimate that it is mainly due to the slowdown in production expansion by downstream manufacturers and increased competition in the industry. The 1-3Q23/3Q23 company's expenses rate for the period was 24.2%/24.3%, a year-on-year decrease of 1.0ppt/ an increase of 4.3ppt. Among them, the 3Q23 sales/management/R&D/finance expense ratio was +1.0ppt/+1.4ppt/+2.0ppt/ -0.1ppt, respectively. The company's net interest rate for 1-3Q23/3Q23 was 9.9%/6.3%, a year-on-year flat/decrease of 6.6ppt.
Cash flow is relatively stable. The net cash flow from operating activities of the 1-3Q23 company was 14.05 million yuan, a year-on-year decrease of 140 million yuan, of which the net outflow for 3Q23 was 93.13 million yuan, an increase of 15.88 million yuan over the previous year. As of the end of the 3Q23 period, the company's contract liabilities were 1.87 billion yuan, an increase of 230 million yuan over the previous year and a decrease of 120 million yuan over the previous year.
Development trends
Focus on business development in overseas markets. In recent years, the pace of expansion of production in overseas markets by Chinese battery manufacturers and overseas battery manufacturers has accelerated, driving a boom in demand for lithium battery equipment in overseas markets. We believe it is expected that the growth rate will be faster than that of the domestic market. According to the company announcement, in order to effectively expand overseas markets, the company has set up a wholly-owned subsidiary in Thuringia, Germany. Looking ahead, considering the company's strong technical advantages and overseas strategic layout, as the production capacity expansion of manufacturers in overseas markets progresses, we believe that the company's overseas orders are expected to achieve relatively rapid growth, which in turn will support revenue and profit to a certain extent.
Focus on the growing trend of the consumer electronics business. In recent years, the company has continued to expand in the consumer electronics business field, and current cooperation with internationally renowned companies in the consumer electronics field is progressing smoothly. Considering the company's strong technical advantages, with the increase in the application of laser welding technology and the launch of new consumer electronics products, we believe that the company's consumer electronics business orders and revenue are expected to rise further, contributing additional volume to the company in the medium to long term.
Profit forecasting and valuation
Maintain an outperforming industry rating. Considering the slowdown in production expansion by domestic downstream manufacturers and increased industry competition, the 2023e/2024e profit forecast was lowered by 30%/39% to 330 million yuan/330 million yuan. The company is currently trading at 20x/20x 2023e/2024e P/E. Considering the decline in valuation brought about by the decline in profit and the slowdown in production expansion, the target price was lowered by 23% to 23.20 yuan, corresponding to 24x/24x 2023e/2024e P/E, with 20% upside.
risks
Battery manufacturers' tenders fell short of expectations, and the amount of new technology and products released fell short of expectations.