The 3Q23 performance was slightly lower than our expectations
The company announced 3Q23 results: 1-3Q23 had revenue of 4.876 billion yuan, an increase of 22%; net profit of 483 million yuan, an increase of 59%, net profit of 483 million yuan, and net profit of 307 million yuan, an increase of 31%. Among them, 3Q23's revenue was 1,590 billion yuan, up 24% year on year; net profit was 93 million yuan, up 16% year on year, net profit after deducting 70 million yuan, up 16% year on year. Due to increased cost investment, the net profit side was under pressure. Overall, it was slightly lower than our expectations.
Development trends
The company's revenue continued to grow at a high rate during the 3Q23 period, and the diversification strategy continued to work. The company's 3Q23 revenue increased 24% year on year. Among them, we expect the company's industrial control business to still achieve high growth during the 1-3Q23 period. The company's overall business growth exceeded expectations due to the electrification of construction machinery and wind power business; the new energy vehicle business continued to grow at a high level under the improvement of the customer structure; in addition, the company's overall smart home appliance electronic control, intelligent equipment, and precision links business grew steadily. However, the overall growth of the power supply business is under pressure.
The company's profitability continued to improve year-on-year during the 3Q23 period, but overall costs such as personnel costs, equity payment costs, and project investment were under pressure. Looking at the reduction of one-time expenses, there was still a high year-on-year increase in non-net profit in 3Q23. The company's gross margin during the 3Q23 period was about 25.2%, down 0.7ppt from month to month and up 1.5ppt from year to year. However, at the same time, the company's investment on the cost side increased. The company's sales, management, and R&D expenses during the 3Q23 period changed year-on-year by +1.1ppt, +0.6ppt, and -0.7ppt, respectively, and changed +0.5ppt, +0.4ppt, and +2.3ppt to 5.2%, 3.2%, and 11.9% from month to month. Furthermore, the company incurred a total of 13.26 million yuan in related expenses due to bond conversion issuance and equity incentives for the 3Q23 company. If this part of the impact is deducted, the company's 3Q23 non-net profit increased 20% year-on-year, and still recorded a high growth rate.
We continue to be optimistic about the company's scalability as a platform-based power electronics company in various industries, as well as the scale effect of the company's continued expansion on the overall business side and cost side. I think the overall scale effect will be even more significant when the company crosses the 10 billion yuan revenue mark.
Profit forecasting and valuation
Due to the company's increased investment in new business expansion, we lowered 2023/24 net profit by 14.5% and 6.1% to 62/92 billion yuan, corresponding to the current stock price ratio of about 20.1x/13.6x. Maintaining an outperforming industry rating, due to the recent decline in the valuation center, we lowered our target price by 18.6% to 35 yuan, corresponding to a price-earnings ratio of about 28.3x/19.2x in 2023/24. Compared with the current stock price, there is still room for 41% increase compared to the current stock price.
risks
Demand fell short of expectations, competition in the industry intensified, and the expansion of new business fell short of expectations.