Fourth quarter revenue exceeded expectations, focusing on short-term return on investment to improve profitability. The company achieved revenue of 17.103 billion yuan in 4Q23, exceeding our expectations (HTI forecast: 16.567 billion yuan), +6.5% year over year, -10.3% month on month; gross profit margin of 7.5%, +3.6 pcts year on year, -0.5 pcts month on month.
4Q23 automobile revenue was 15.439 billion yuan, +4.6% year over month, -11.3% month on month; automobile gross profit margin was 11.9%, +5.1 pcts year over year, and +0.9 pcts month on month, mainly due to lower unit material costs. The company achieved revenue of 55.618 billion yuan (HTI forecast: 55.81 billion yuan) for the full year of 2023, +12.9% year on year, automobile revenue of 49.257 billion yuan, +8.2% year on year; gross profit margin was 5.5%, down 4.9 pcts year on year, and automobile gross profit margin was 9.5%, down 4.2 pcts year on year.
R&D, marketing and management expenses have both increased, and performance continues to be under pressure in the short term. The company's 4Q23 R&D expenses (all below are non-GAAP) reached 3.616 billion yuan, +1.8% YoY, +36.8% month-on-month; SG&A expenses were 3,782 billion yuan, +16.1% YoY and +10.4% month-on-month. Looking at the full year, the company's R&D expenses were 11.914 billion yuan, +25.2% year-on-year, and SG&A expenses were 12.117 billion yuan, +25.8% year-on-year. The adjusted operating loss for 4Q23 was 6.059 billion yuan, +0.7% YoY and +42.9% month-on-month, and remains under pressure in the short term. Looking at the full year, adjusted operating losses reached 20.086 billion yuan, +52.0% year-on-year. We expect the scale of the company's R&D investment in 24 to be the same as in 23, and it is expected that quarterly losses will gradually narrow through continuous cost reduction and efficiency.
Delivery and revenue guidelines for the first quarter fell short of expectations, and the effect of the facelift remains to be observed. The company expects to deliver 31,000-33,000 vehicles in 1Q24, -0.1% to +6.3% year-on-year; revenue of 104.99-11.087 billion yuan, or -1.7% to +3.8% year-on-year. The company delivered 10,055/ 8,132 vehicles in January, corresponding to an estimated delivery of 12,813-14,813 vehicles in March. The company officially welcomed the 2024 model facelift in March. Delivery of the ES8/EC7/ES6/EC6/ET5T will begin in March, and the price and current model will remain the same. Delivery of the new ET5/ES7 will begin in April and May, respectively, and the new ET7 will be released and locked orders will begin in April. The biggest upgrade of the NIO facelift comes from the fact that the facelift models will all be based on the new central computing platform ADAM and equipped with Qualcomm Snapdragon SA8295P fourth-generation cockpit chips. We believe that against the backdrop of a new round of price wars in the car market, it is still unknown whether NIO's slightly inadequate facelift will help the delivery performance pick up as scheduled in the first half of the year, under the impact of many car companies' increases and price cuts. We expect the company's 2Q24 deliveries to increase to around 53,000 vehicles, and 3Q24 deliveries are expected to return to the 20,000 vehicle mark.
The first Alpine car is targeting the Model Y to share the new advantages of NIO's power exchange network. NIO announced that its second brand, Alps, plans to launch in the second quarter, symbolizing that it has become the first new car builder to develop a sub-brand, opening a new chapter in the company's development. Alps will focus on the 20-30,000 yuan mainstream market. Its first electric model will directly target the Tesla Model Y. It is expected that Q3 will be released and delivery will begin in Q4. The company is very confident about the first model, saying that the cost will be about 10% lower than Tesla, and the pricing may be very flexible. The brand will establish an independent sales network while utilizing part of NIO's after-sales service system, and will share NIO's power exchange network. Alps's second product is an SUV for large families. It has now successfully entered the model opening stage and is expected to enter the market next year. Furthermore, NIO plans to launch a third brand, Firefly, in 2025, and will use this brand to enter the Red Sea of 100,000 yuan NEVs. We believe that Alps is fully integrated into NIO's shared power exchange network, and the “rechargeable, exchangeable and upgradeable” characteristics of the new model are expected to further promote the brand's decline. Combined with Wei's construction of 3310+ power exchange stations across the country by the end of the year, it is expected to establish a new competitive advantage in the mass market and promote a recovery in the Group's sales volume.
Profit forecast and investment rating: Combined with the company's 1Q24 guidelines and 2024 product plan, we expect the company to deliver 230,000 vehicles in 2024, and forecast the company's revenue for 2024-26 to be 76.96 billion/ 107.52 billion/ 128.75 billion yuan (down 14%/21%/new introduction). Referring to the valuation levels of leading new car builders at home and abroad, 1.0 x EV/sales in 2024 was given, corresponding to a target price of HK$57.20 (corresponding to 1.15 x PS in 24 years, which is at a reasonable level; HK$1 = RMB0.9201 exchange rate assumption; the previous target price was HK$77.54, corresponding to 1.3 EV/sales in 24 years, HK$1 = RMB0.914; down 26%). Maintain an “better than the market” rating.
Risk warning: New car orders and production capacity releases fall short of expectations; market competition intensifies; construction of charging and switching facilities falls short of expectations.