Description of the event

Yihuatong announced its 2023 performance forecast. It is expected to achieve operating income of 740 to 820 million yuan, an increase of 0.26% to 11.1%; net profit to mother of -2.90 to 210 million yuan, a year-on-year decrease of 25.95% to 73.93%; and net profit after deducting non-return to mother of -3.40 to 250 million yuan, a year-on-year decrease of 35.3% to 84.0%. Among them, the fourth quarter is expected to achieve revenue of 447 million yuan to 527 million yuan, up 28.5% to 51.5% year on year, net profit to mother - 9695 million yuan, increase or decrease ratio of -34.9% to 76.4%, net profit after deducting non-return to mother - 10,659 to -16.59 million yuan, with a change ratio of -27.6% to 80.1%.

Incident comments

The fuel cell industry is in the early stages of commercialization, and business performance is highly volatile.

Quantity: According to China Insurance Credit data (note: from Shanghai Insurance, there may be a gap with the value disclosed by the company), the installed capacity of the company's fuel cell system in 2023 was 165.7 MW, an increase of 46.3% over the previous year, leading the market share. The growth rate was slightly lower in 2023 due to the following reasons:

1) The development of the hydrogen fuel cell vehicle industry is still immature. It relies more on government financial incentives, and local government spending pressure is high, which has affected the promotion progress to a certain extent; 2) Beijing's 2022 market growth is weak in 2023 due to high demand for application scenarios of the Winter Olympics.

Price: The increase in the company's revenue was less than the increase in installed capacity, judging a further decline in unit prices. Assuming that the decline in the company's fuel cell system revenue is consistent with the decline in total revenue, it is estimated that the fuel cell system sales unit price drop range is 24.1% to 31.5%; with the rapid decline in fuel cell system sales prices, it may soon usher in a turning point in application scenarios such as buses and commercial vehicles.

Profit: The main reasons for the decline in performance: 1) 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 increase in related depreciation costs was hampered. 2) Currently, the hydrogen fuel cell industry is in the early stages of promotion. The company's R&D investment is high. The cost rate increased by 39.62 pct year-on-year during the first three quarters of 2023, of which the management and R&D cost rate increased by 38.30 pcts to 96.66%, which is the main increase. 3) In addition, the company increased the expected credit risk losses for accounts receivable based on prudential considerations, which also hampered performance. Credit impairment losses increased by 56.408 million yuan year-on-year in the first three quarters of 2023.

The first year of the national supplement was distributed in the model urban agglomeration, and the company's cash flow is expected to improve. It is estimated that from the beginning of the demonstration period until the end of 2023, the amount of state subsidies that the company should receive is 1,027 billion yuan. The model urban agglomeration was delayed, resulting in a slow overall repayment for the company's customers. The company's revenue ratio for the first three quarters of 2023 was only 52.03%. As of January 17, 2024, some cities in the five major model city clusters have announced a total of 772 million yuan in incentive funds for the first year; of these, the Beijing-Tianjin-Hebei (2024/1/5 policy promulgated) and Hebei (2023/12/6 policy promulgated) model city clusters, which are publicized amounts of 3.50 million yuan and 146 million yuan, respectively. It is expected that the 2024 national subsidy funds will be distributed to vehicle customers (after automakers receive subsidies from their customers or the government before making payments to suppliers), the company's cash flow is expected to improve.

We expect fuel cell vehicle promotion to continue to accelerate. In 2024, the five major model cities have already entered the third year of demonstration promotion. It is expected that markets such as Guangdong, which were relatively slow to promote during the first two years, will speed up expansion, and fuel cell promotion in Beijing is also expected to maintain a high increase. Looking ahead, we believe the company will still benefit from the high growth in the fuel cell industry: 1) in 2023, the share of truck insurance in fuel cell vehicles reached 79.1% (71.7% in 2022), which means that the economy is gradually being accepted by the market; 2) the installed power of bicycles continues to increase, and product performance continues to improve.

The company's revenue for 2023-2024 is expected to be 764 million yuan and 990 million yuan, respectively, maintaining a “buy” rating.

Risk warning

1. Product iteration risk due to technological upgrades; 2. Risk of inventory impairment and bad accounts receivable.