It is predicted that profit attributable to company owners will increase 200-240% year on year in 2023, and the company issued a positive profit forecast: profit attributable to company owners in 2023 will increase 200-240% year on year (1.67 billion yuan in the same period in 2022, re-listed due to capital increase in Weichai Intelligent Technology Co., Ltd. and adoption of consolidated accounting treatment), with a corresponding amount of 50.10-5.678 billion yuan. The profit forecast for 2023 greatly exceeded market expectations, and we believe it mainly benefited from factors such as scale effects and product restructuring.
Key points of interest
Increased market share led to the release of scale effects, and segmented racetracks such as exports and heavy natural gas trucks brought volume and price flexibility. The company is at the forefront of the industry in terms of wholesale, export, natural gas heavy trucks, etc.: China Automobile Association shows that the company's heavy truck wholesale sales volume in 2023 was 234,000 units/+48%, with a market share of 25.7% /year over year +2.1pct; in 2023, the company exported 121,000 units/year on year +51%, with a market share of 44%; Jiaotong Insurance showed that in 2023, the company's heavy natural gas truck license volume reached 27,000 units/year on year +335%, with a market share of 18%. We believe that the heavy truck industry's restorative growth in 2023, the increase in the company's market share, the growth in sales led to the release of scale effects, strong export growth, and continued increase in the share of high value-added products such as heavy natural gas trucks and high-end vehicles, thus driving a significant increase in profitability and exceeding market expectations.
The company issued an equity incentive plan, and the performance assessment goals showed medium- to long-term confidence. On January 23, the company issued an equity incentive plan, announcing that it has been approved by the board of directors and the remuneration committee. The implementation of the plan must be approved in advance by Shandong Heavy Industries and filed with the Shandong State-owned Assets Administration Commission. Initially, no more than 194 people will participate in the equity incentive plan, and the company expects up to 27.6 million shares to be awarded as incentive shares (1% of the total share capital). The assessment target is: revenue for 2024-2026 is not less than 948/1091/125.5 billion yuan, and the corresponding sales margin is not less than 7.5%/8%/8.5%. Refer to the historical value of the company's net profit to mother as a share of 80% of total profit. We estimate that the corresponding net profit target for 2024-2026 is approximately 56.9/69.8/8.53 billion yuan, with a year-on-year growth rate of 6%/23%/22% in 2024-2026 (see performance forecast center for 2023). We believe that overall, the 2023-2026 revenue target (see our forecast for 2023 revenue) has a compound growth rate of 13%, and the net profit target compound growth rate is 17%, which shows the company's firm confidence in medium- to long-term business performance as a leader in the commercial vehicle industry.
Profit forecasting and valuation
Considering the company's export and heavy gas truck segments releasing profit elasticity, we revised our 2023/2024 profit forecast 33%/29% to 53.1/6.07 billion yuan, and introduced the 2025 profit forecast for the first time of 6.54 billion yuan. Considering the impact of a combination of factors such as an increase in the company's profit forecast and a downward shift in the sector's valuation center, the valuation switched to the 2024 level, and we kept our target price unchanged at HK$22.26, corresponding 8.8 times the 2024 P/E. There is 27.1% upside compared to the current stock price (corresponding to 6.9 times 2024 P/E).
risks
Production and sales in the industry fell short of expectations, heavy truck exports fluctuated, heavy natural gas truck sales fell short of expectations, and competition worsened.