Forecast that net profit to the mother will increase by 229.65% to 295.58% year on year in 2023. The company announced the 2023 performance forecast: it is expected to achieve operating income of 113.00 to 11.600 billion yuan, an increase of 2.97% to 5.70%; net profit to the mother of 3.00 to 360 million yuan, an increase of 229.65% to 295.58% year on year; after deducting non-net profit of 220 to 260 million yuan, an increase of 1105.55% to 1324.74% year on year.
Corresponding to 4Q23 revenue of 2,760 million yuan, up 4.67% to 16.05% year on year; net profit to mother was 10.4 million yuan to 70.4 million yuan, up 68.65% to 1041.95% year on year; after deducting non-net profit of 127 to 41.27 million yuan (4Q22 loss of 37.2 million yuan). The net profit for 4Q23 was lower than our previous expectations. We determined that it was mainly affected by factors such as power battery losses, asset impairment, and exchange losses.
Key points of interest
Consumer battery revenue has been rising steadily, and power battery losses are dragging down performance. According to Canalys, 4Q23 global smartphone shipments increased 8% year over year; according to Counterpoint, 4Q23 global PC shipments fell 0.2% year on year, and continued to improve month over month. The gradual improvement in downstream demand combined with the company's continued increase in market share, leading to a 4.67% to 16.05% year-on-year increase in 4Q23 revenue. Among them, we expect the company to expand its core products smoothly for major customers in North America. In terms of power battery business, considering that 4Q23 net interest rate fell 2.56ppt-4.49ppt to 0.38% to 2.30% month-on-month, we determined that the main reason was power battery loss. Furthermore, due to the high initial cost of the power business, and considering the decline in raw material prices, the company predicts a total of 305 million yuan in asset and credit impairment in 2023, causing a certain drag on performance.
Optimistic about the long-term growth potential of consumer batteries, the power business is expected to gradually reduce losses. In terms of the consumer battery business, looking ahead to 2024, we expect demand for PCs and mobile phones to recover as downstream demand gradually recovers and innovative products such as AIPC/AI phones and folding screens are launched. We are optimistic that the company's consumer battery business will continue to grow as the share of major customers in North America increases and accelerates the expansion of Android customers. In terms of the power battery business, the company said that the start-stop battery has been recognized by well-known domestic and foreign car companies such as SAIC Motor, Jaguar Land Rover, etc., and has received fixed designation letters for several model projects. In addition, the company announced that it is planning to increase capital and expand shares of the holding subsidiary Zhejiang Guanyu (power storage battery business) and introduce external investors. The company said it will focus on low-voltage start-stop batteries, focus on businesses that can create profit growth points, and carefully seize automotive high-voltage battery opportunities. We expect the future power battery business to gradually reduce losses as scale expands and equity dilution.
Profit forecasting and valuation
Taking into account the losses in the power battery business, net profit of 2023/2024 was reduced by 33.9%/11.3% to 330 million yuan/935 million yuan, and a profit forecast of 1,369 million yuan for 2025 was introduced for the first time. The current stock price corresponds to 2024/2025 18.7/12.8 times the price-earnings ratio. Considering the downward trend in the valuation center of the industry, the target price was lowered by 23.6% to 21.0 yuan, which corresponds to the price-earnings ratio of 25.2/17.2 times in 2024/2025, and there is 34.7% upside compared to the current stock price.
risks
Demand for consumer batteries is low, the power and energy storage business continues to lose money, and there is a risk that raw material prices will rise.