Description of the event

In the first three quarters of 2023, Yihuatong achieved operating income of 293 million yuan, a year-on-year decrease of 24.90%, net profit loss of 193 million yuan, and increased losses of 95 million yuan in the first three quarters of 2022; Q3 achieved operating income of 140 million yuan in a single quarter, an increase of 15.13% over the previous year, net profit loss of 117 million yuan, and a loss of 35 million yuan in the same period last year, with a marked 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 decline in the company's revenue in the first three quarters are: 1) The development of the hydrogen fuel cell vehicle industry is still immature and relies more on government financial incentives. This year, the pressure on local government fiscal expenditure was high, which caused the fuel cell vehicle promotion progress to a certain extent; 2) Beijing released a lot of fuel cell vehicle demand last year due to the application scenario of the Winter Olympics, and it is estimated that demand in the Beijing market declined year on year; 3) The fuel cell industry is in the early stages of commercialization, with sales and revenue confirmation of major products concentrated in the fourth quarter, leading to large revenue fluctuations in the first three quarters. On the cost side, the second phase of the company's fuel cell system project was put into operation in the second half of 2022, and the related increase in depreciation costs also dragged down the company's performance.

The company's consolidated gross margin has declined, and the decline in revenue has led to a marked increase in the expense ratio. The company's comprehensive gross margin for the first three quarters of 2023 was 37.91%, down 3.29pct from the previous year, but it is still at a high level. In the long run, as the industry expands, gross margin may continue to show a slow downward trend. The cost ratio for the first three quarters increased by 39.62 pct year-on-year, with the sales expense ratio increased by 7.28 pct to 19.30%, and the management and R&D expense ratio increased by 38.30 pct to 96.66%. Mainly, while the shipment volume declined in the first three quarters, the company increased investment in talent reserve and market development in order to fully grasp the trend of large-scale development of the fuel cell market. At the same time, as the company's business scale continued to expand, the expansion of long-term production and operation assets led to an increase in depreciation and amortization of related assets, leading to an increase in sales, management and R&D expenses Expenses increased by 65,2471 million yuan over the same period last year. In addition, the year-on-year increase in credit impairment losses of 56.408 million yuan also dragged down performance. However, every year Q4 is a peak period for sales, shipping, and revenue recognition, so it is expected that the annual fee rate will decline somewhat.

The pace at which financial subsidies are being put in place is low as expected, and cash flow needs to be improved urgently. The net cash flow from the company's operating activities in the first three quarters was 403 million yuan, and the net outflow for the same period last year was 215 million yuan. The net outflow rate increased. The revenue ratio fell from 95.28% in the same period last year to 52.03% in the first three quarters of this year. Mainly, the position of vehicle customers is relatively strong. Generally, back-to-back repayment agreements are signed (that is, automakers will only pay suppliers after receiving subsidies from their customers or the government). This year's model urban agglomeration is delayed in receiving compensation payments in return for company customers.

It is expected that the promotion of fuel cell vehicles will continue to accelerate. Looking ahead, we believe that the company will still benefit from the high growth in the fuel cell industry: 1) the share of truck insurance in hydrogen commercial vehicles in 2023Q1-Q3 has reached 81.6% (73.7% 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 Q4 performance.

The company's revenue for 2023-2024 is estimated to be 8.2 billion yuan and 1.06 billion yuan respectively, maintaining the “buy” rating.

Risk warning

1. Product iteration risk caused by technological upgrades;

2. Risk of inventory impairment and bad debts on accounts receivable.