occurrences
On October 30, Ryoden Electric Control released its 2023 three-quarter report: the first three quarters achieved operating income of 699 million yuan/yoy +31.88%, and net profit of 42 million yuan/yoy -21.72%.
Key points of investment
Third-quarter results reversed losses year-on-year, and equity incentives optimized governance
The company achieved revenue of 227 million yuan/yoy +34% in the third quarter of 2023, and realized net profit of 11 million yuan, turning a loss into a profit over the previous year. The year-on-year increase in the company's revenue was mainly due to falling natural gas prices, a widening oil and gas price gap, and a sharp increase in sales of the company's dual-fuel EMS system. The company's profit turned a loss into a profit year on year. On the one hand, it benefited from the scale effect brought about by the company's revenue growth, and on the other hand, the company charged share payment expenses in 2022, which put pressure on profits.
The company issued a draft equity incentive in September 2023. The trigger value for the 2023-2025 revenue assessment is 9.9/10.8/1.17 billion yuan, and the target value is 10.7/12/1.37 billion yuan. The company retains core talents through equity incentives, optimizes the governance structure, and continues to improve operations.
Light truck EMS domestic leader, new energy and passenger vehicle transformation opens up growth ceiling
The company is a supplier of automotive power electronic control systems. Its main products include engine management systems, pure electric vehicle power electronic control systems, hybrid vehicle power electronic control systems, and vehicle networking products T-BOX, etc. Among them, gasoline vehicle electronic control system products are the main revenue source, and N1 commercial vehicles are the main sales models. According to the company's prospectus, 81% of the company's EMS product sales in 2020 came from N1, accounting for 24% of the market. By the end of 2019, it had received 2,033 N1 model announcements, accounting for all N1 gasoline vehicle announcements 60% are leading domestic N1 EMS companies. EMS technology has long been monopolized by multinational EMS manufacturers such as Bosch in Germany, mainland Germany, Denso, and Delphi, etc., and has become one of the main bottlenecks limiting the autonomy of China's automobile industry. The company has successfully broken the “core technology hollowing out” situation in the Chinese automobile industry and helped localize automobile power electronic control systems.
In recent years, the company has adhered to the strategy of “customer passenger vehicles and product electrification”. In terms of passenger cars, the company has continued to invest in R&D resources since GDI hybrid passenger cars in September 2021. Currently, one of the company's GDI hybrid passenger cars has entered the mass production and introduction stage; in terms of electrification, the company continues to invest a large amount of R&D resources in new energy product fields such as MCU, VCU, GCU, motor and electronic control two-in-one drive products, and HECU, etc., and announced in October 2023 that MCU products received the Jianghuai Automobile development notice. Overall, the company's passenger vehicle conversion and electrification are progressing smoothly, which is expected to open up a growth ceiling.
The economic efficiency of natural gas light trucks has been highlighted, bringing new opportunities to the company. Domestic oil and gas price spreads remain high, boosting the economy of natural gas vehicles. As domestic natural gas-related infrastructure gradually improves, sales of natural gas commercial vehicles have exploded. Domestic N1 natural gas vehicle sales in the first 10 months of 2023 reached 86,000 units, exceeding 58,000 units for the full year of 2022, of which sales in October reached 12,000 units, an increase of 300% over the previous year. Since the company's EMS products have a higher share of N1 natural gas vehicles and the value of bicycles than N1 gasoline vehicles, the explosion in sales of natural gas vehicles is expected to drive the company's volume and price to rise sharply, bringing new opportunities to the company.
Profit forecasting
In 2023/2024/2025, the company's net profit to the parent is estimated to be 0.8/13/240 million yuan, EPS is 1.53/2.58/4.66 yuan, and corresponding PE is 64/38/21 times, respectively. The company's passenger vehicles and electrification transformation have opened up growth ceilings, and natural gas light trucks have brought new opportunities. We are optimistic about the company's medium- to long-term development opportunities and give it a “buy” rating.
Risk warning
Downstream demand falls short of expectations; electrification has not progressed as expected; passenger vehicle transformation has progressed less than expected; natural gas prices have risen more than expected; competition has increased risk; and the progress and effectiveness of equity incentives have fallen short of expectations.