Key points of investment
Incidents:
Company announcement: In the first three quarters of 2023, revenue was 1.8 billion yuan, up 57% year on year; net profit was 0.3 billion yuan, up 192% year on year (-0.3 billion yuan in the same period last year). Among them, revenue for the third quarter was 580 million yuan, down 17% year on year; net profit was 0.2 billion yuan, up 128% year on year.
In 2023, the company continued to promote cost reduction and efficiency, and profitability was restored. The inflection point in performance showed that the sharp increase in the company's revenue in the first three quarters of 2023 was mainly due to the acquisition of Dongheng in Fujian, and the year-on-year net profit reversal was mainly due to the company's efforts to reduce costs and increase efficiency, strengthen personnel management, and improve production efficiency. The company's gross sales margin for the first three quarters of 2023 was 24%, an increase of 4 pct over the same period last year. In the first three quarters of 2023, the company's sales expense ratio, management expense ratio, R&D expense ratio and financial expense ratio were 2.0%, 6.7%, 5.3%, and 1.4% respectively. Among them, the sharp reduction in R&D expenses of 6.1 pct over the same period was mainly due to reasonable optimization and adjustment of R&D personnel.
The acquisition of Fujian Dongheng has been completed. Intelligent manufacturing equipment and new energy battery components two-wheel drive development. In 2022, the company completed the acquisition of 51% of Fujian Dongheng's shares in cash, expanding from the field of new energy battery production lines to the field of new energy battery components, and into the lithium battery module structural parts business. According to the announcement, Fujian Dongheng's performance promises for 2022-2024 are no less than 150 million yuan, 160 million yuan, and 170 million yuan respectively, and the actual net profit for 2022 is 160 million yuan, achieving a ratio of 104%.
The registration of the first grant of the 2023 Stock Options Incentive Plan was completed, helping to increase the motivation of the management team. The registration of the first equity incentive grant was completed in September 2023. The number of grantees was 621, and the exercise price was 54 yuan. Performance assessment indicators at the company level: revenue growth in 2023-2025 is not less than 20%, 60%, and 100% compared to 2022, that is, not less than 2.2, 2.29 billion yuan, or 3.6 billion yuan; or net profit in 2023-2025 will reach 100 million yuan, 200 million yuan, and 300 million yuan respectively. The equity payment fee is for 2023-2026 amortization, with a total cost of 0.1 billion yuan.
Leading new energy vehicle module/pack equipment, optimizing the order structure, and focusing on developing new energy vehicle module/pack automation equipment in overseas markets. Driving forces for growth in demand for new energy vehicle module/pack automation equipment: 1) growth in new energy vehicles; 2) increased automation rate of equipment; 3) domestic replacement; 4) globalization; 5) new products and breakthroughs in new fields.
We expect the domestic module/pack line market to reach 11.3 billion yuan in 2025, with a compound growth rate of 19% in 2021-2025. Growth drivers: 1) Demand for lithium battery equipment continues to grow; 2) Module/PACK automation rate increases.
Focus on overseas markets. The company is an important supplier to German car companies, and has a good supporting base. New energy vehicles in Europe and the US are growing rapidly. It is estimated that the European/US module and PACK line markets will reach 83/53 billion yuan in 2025, respectively, and the compound growth rate from 2021-2025 will reach 20%/67%.
Profit forecasting and valuation
The company's net profit from 2023-2025 is estimated to be 0.4, 160 million yuan, and 230 million yuan respectively, corresponding to PE of 107, 26, and 17 times, respectively, maintaining the “buy” rating.
Risk warning
The expansion of power lithium battery production fell short of expectations; progress in the application of large cylindrical lithium batteries fell short of expectations