Performance preview

In 2023, net profit to mother is forecast to increase 90-120% year over year

The company issued a performance forecast: net profit attributable to mother in 2023 was 387-448 million yuan, up 90-120%, corresponding to the core 418 million yuan/105% increase; in 2023, deducted non-net profit of 364-425 million yuan, an increase of 72-101%, corresponding to the core 395 million yuan/same increase of 87%.

We calculated 4Q23 net profit of 0.76 to 137 million yuan, an increase of 82-227%, or -39%, corresponding to the central core of 107 million yuan, +154%/+8% year over month; 4Q23 deducted non-net profit of 0.60-121 million yuan, an increase of 65-233%, or -38% or +25% month-on-month, corresponding to the core of 91 million yuan and +149%/-6% year over year.

Key points of interest

Crankshaft connecting rod faucets benefit from the recovery of the commercial vehicle industry, and the scale effect unleashed profit elasticity. The company is a commercial vehicle crankshaft connecting rod leader. In 2022, the market share of heavy truck/light truck crankshafts reached 60%/30%, and the truck connecting rod market share reached 40%. In 2023, the heavy truck industry sold 911,000 units/up 35.6%; 4Q23 sold 204,000 units, +37%/-6% year on year; in 2023, the youth truck industry sold 1.911 million units/up 18% year on year; 4Q23 sold 532,000 units, +39%/+20% year on month. We believe that the company has significantly benefited from the commercial vehicle industry's recovery beta, improved gross margin through scale effects, and relied on its own advantages such as lean manufacturing capacity, cost reduction, efficiency and cost control ability to drive profit growth to outperform the industry's sales growth rate.

The employee stock ownership plan actively guides the 2024 growth target and has a high margin of safety. In May 2023, the company issued an announcement on the 2023 employee stock ownership plan, which indicates that the target net profit value for 2023/2024 is 407/611 million yuan, and the trigger value is 386.529 million yuan. We believe that the performance target guidance of the employee stock ownership plan is optimistic, demonstrating the company's confidence in improving its own quality and efficiency. Furthermore, as of the end of 3Q23, the company had a monetary fund balance of 1.0 billion yuan, abundant cash on hand, and healthy cash flow.

I am optimistic that 1Q24's good start will bring a double increase in performance and valuation, and the heavy truck industry is supported by upward cyclical performance.

We expect the 1Q24 heavy truck industry's sales volume to increase month-on-month, with a high degree of “good start”, and an increase in the company's valuation and performance as a heavy truck industry chain. We judge that in 2024, the heavy truck industry will grow 20% to 1.1 million vehicles year-on-year due to factors such as renewal and replacement, steady logistics growth, infrastructure recovery, and stable exports. The company is expected to continue to benefit from the industry's upward cycle beta, and revenue and profit will continue to increase.

Furthermore, the company's suspension and electronic control transition to two major emerging businesses are progressing smoothly, continuing to explore passenger customers, domestic and foreign markets, and we expect potential valuation catalysts in the future.

Profit forecasting and valuation

The profit forecast for 2023 and 2024 remains unchanged, and the 2025 profit forecast of 684 million yuan was introduced for the first time. Maintain outperforming industry ratings. The current stock price corresponds to 11.1/9.3 times the 2024/2025 P/E. Considering the downward shift in the valuation center of the auto zero sector and the valuation switch to 2024, we are giving 15.0 times the 2024 P/E and lowering the target price by 15.3% to 7.51 yuan, which has 34.6% upside compared to the current one.

risks

Production and sales in the commercial vehicle industry fell short of expectations, development of emerging businesses fell short of expectations, and customer development fell short of expectations.