Core views

In 2023, the company achieved revenue of 1,740 billion yuan, a year-on-year increase of 37.80%, net profit of 261 million yuan, a year-on-year increase of 43.87%, and non-return profit of 289 million yuan, an increase of 130.40% over the previous year, and the company exceeded the performance incentive target. As new projects continue to be implemented, the company's customer structure is expected to usher in continuous optimization. At the same time, the company has sufficient cash reserves, undervaluation compounded high dividends to create a margin of safety, and employee stock ownership plans guarantee the company's internal driving force. We are optimistic that the company will continue to grow steadily. The company's net profit from 2024-2025 is estimated at 350 to 420 million yuan, corresponding to the current PE of 13X and 10X, giving it a “buy” rating for the first time.

occurrences

1) The company publishes its 2023 annual report. In 2023, we achieved revenue of 1,740 billion yuan, a year-on-year increase of 37.80%, and net profit to mother of 261 million yuan, an increase of 43.87% year-on-year, after deducting non-profit of 289 million yuan, an increase of 130.40% year-on-year.

2) The company announced the 2023 profit distribution plan. It is expected to distribute a cash dividend of RMB 5 (tax included) to all shareholders for every 10 shares, with a dividend rate of 5.15%. In total, the proposed cash dividend was 216 million yuan (tax included), and the cash dividend ratio accounted for 82.95% of the year's net profit.

Brief review

The annual performance exceeded the incentive target and received quotation invitations from many new energy customers.

In 2023, we achieved revenue of 1,740 billion yuan, up 37.80% year on year, net profit of 261 million yuan, up 43.87% year on year, after deducting non-profit of 289 million yuan, an increase of 130.40% year on year.

Q4 Revenue, net profit attributable to mother, and net profit after deduction were 5.26 billion yuan, 0.55, and 80 million yuan, respectively, up 29.05%, -29.58%, and 35.59% year-on-year, respectively, and up 8.56%, -28.75%, and -3.61%, respectively. Q4 Profit declined month-on-month, mainly affected by the payment of 10 million dividend payments. The company issued a draft employee stock ownership plan in 2023, requiring an assessment that the company's profit growth rate in the next few years will not be less than 20%, and that the company will exceed the incentive target in 2023. The company's annual performance growth in 2023 was mainly due to (1) actively expanding the market space, receiving various projects such as the export of some transmission cases and cylinder heads from Changan Ford, and also receiving quotation requests from pure electric and hybrid customers in the new energy sector; (2) implementing R&D in the new energy drive sector, launching a “re-engineering and upgrading” strategy, and establishing a subsidiary Meifeng Qin An to enter the new energy sector; (3) achieving phased results in the construction of new energy bases; (4) improving the talent incentive and restraint mechanism, and launching an employee stock ownership plan in 2023.

The gross margin for the whole year reached 26.73%, and the net interest rate declined due to dividend payments in Q4. In 2023, the company achieved a gross profit margin of 26.73%, +7.42pct year on year. Among them, the gross margin of the cylinder head business was +2.45 pct year over year, and the gross margin margin was +15.25pct year over year. The significant increase in gross margin was mainly affected by the increase in the revenue share of high-margin customers. The net profit margin for the year was about 14.99%, +0.64pct year-on-year. The cost rate for the full year was 6.88%, which was basically the same as the previous year. Among them, the sales expense ratio, management expense ratio, R&D expense ratio, and financial expense ratio were 1.01%, 4.45%, 2.63%, and -1.21%, respectively. Q4 gross margin was about 28.30%, +10.84pct, +1.00pct, net margin was about 10.47%, and -8.42pct and -5.49pct, month-on-month, respectively.

High dividends combined with undervaluation create a margin of safety, and the customer structure based on ideals is expected to continue to be optimized. (1) Abundant cash on hand: By the end of 2023, the company had total assets of 3.159 billion yuan, total liabilities of 569 million yuan, and a balance ratio of 18.02%. The balance of monetary funds and transactional financial assets held was $1,152 million, the cash ratio was 2.12, the overall debt situation was good, the financial indicators were stable, and the management resilience and resilience to risks were strong; (2) Continued implementation of a high dividend strategy: in 2023, a total discovery dividend of 216 million yuan (tax included) is proposed, and the cash dividend ratio accounts for 82.95% of the net profit for the year. The dividend rates for 2021, 2022, and 2023 were 5.86%, 12.82%, and 5.15%, and continued to fully give back to investors with a high dividend ratio; (3) The company has no plans to add additional production capacity. In 2023, cylinder head and transmission case production increased by 54.54% and 93.41%, respectively. The company's current production capacity can meet orders from new customers and is expected to have a scale effect. (4) Accelerate the expansion of new customers: In addition to Ideal and Ford, which currently account for relatively high revenue, the company is actively developing new customers and new projects, and is expected to continue to gain more fixed points in the field of growth and pure electricity.

Investment advice

The company is mainly engaged in the manufacture of lightweight automotive parts. Its products include engine blocks, cylinder heads (can be used for range extension & hybrid), tri-electric housings, electric drive assemblies, etc. As new projects continue to be implemented, the company's customer structure is expected to usher in continuous optimization. At the same time, the company has sufficient cash reserves, undervaluation compounded high dividends to create a margin of safety, and employee stock ownership plans guarantee the company's internal driving force. We are optimistic that the company will continue to grow steadily. The company's net profit from 2024-2025 is estimated at 350 to 420 million yuan, corresponding to the current PE of 13X and 10X, giving it a “buy” rating for the first time.