Strong profit growth in 23 years, showing the true character of a leader
The company announced 23-year results: revenue of 85.5 billion yuan, +44% year over year, net profit to mother of 5.3 billion yuan, +196% year over year, operating cash amount +4% year over year to 11.4 billion; 23H2 revenue +7% month-on-month, net profit +24% month-on-month. We expect the company's 2024-2026 EPS to be 2.22/2.60/2.98 yuan respectively. According to Wind's consistent expectations, the average value of the 2024E PE is 12x. Considering the company's stable leading position, rapid profit growth rate in 24-25 years, and planned equity incentives, we will give it 12x 24E PE, corresponding to a target price of HK$29.27, maintaining a purchase rating.
The profit growth rate in 23 greatly outperformed revenue, and the issuance of equity incentives showed long-term development confidence. The group's profit growth rate significantly outperformed revenue in 23, mainly due to: 1) strong cost-side control: sales/management rates -0.14/-2.6pct year on year, 2) release of past profit-pressurized projects: net impairment losses of financial assets turned back 170 million yuan/fair value impairment of financial assets reduced other expenses by -290 million yuan/financial revenue year on year +150 million yuan/joint enterprises enjoyed profit from loss to profit, and 3) capital expenditure compared to -37% compared with the same period. 4) High profit margin The financial segment's contribution declined, and gross margin was -0.1 pct year over year. The Group issued an equity incentive plan in '24. The target revenue for 24/25/26 is not less than 948/1091/125.5 billion yuan, and the sales profit margin is not less than 7.5%/8%/8.5%, demonstrating confidence in long-term development.
Exports+natural gas heavy trucks have been rising steadily, and heavy truck sales have reached a perfect end in '23. The Group's heavy truck sales volume in '23 was +44% to 23w, and revenue was +50% YoY to 75.3 billion yuan. Of these, export sales were +47% to 13w, and export revenue was +58% YoY to 41.1 billion yuan.
Domestic and foreign sales resonated, unleashing considerable scale effects. Heavy truck operating profit margin in '23 was +0.6 pct to 5.8% year on year, and bicycle profit was +0.3 million yuan to 192,000 yuan year on year. Looking back, we expect the Group to still enjoy the dividends of the improved market segmentation + increased share: 1) We expect the total sales volume of the heavy truck industry in 24 to 10.5 million vehicles, +15% over the same period, including exports of 28 to 300,000 vehicles and 200,000 to 230,000 LNG heavy trucks. 2) In 23 years of wholesale sales, the group's share was as high as 25.7%, compared to +2pct. The Group had a stable advantage in the export field, LNG later took the lead with high-end products, and a stable position on mainstream tractor tracks. It is expected to maintain a strong trend in 24 years, with sales volume of 300,000 to 330,000 vehicles, +30% to +40% compared to the same period last year.
The light truck/engine/financial business is under slight pressure. It is expected that operations will improve further. The Group's light truck sales volume in '23 was +21% to 97,000 units, revenue +21% to 10.3 billion yuan, operating loss rate was 6%, and bicycle profit loss was 0.65w, mainly due to intense competition for light trucks and high investment in sales research and development, but it has narrowed since '22. In the future, the company focused on securing market share in key market segments and optimizing the marketing network to improve efficiency. In terms of engines, revenue was +27% year over year to 14.6 billion yuan, and sales volume was -3.5% year over year, but due to increased sales of assembly parts, operating margin was +13.7 pct to 14.2% year over year. In the financial business, revenue for 23 years was -19% to 13.9 billion yuan, and operating profit margin was +15.7pct to 55.6% year over year. The main reason was a reduction in business scale and a decrease in interest income, but benefiting from lower interest rates on loans, the decline in interest expenses was even higher.
Risk warning: Commercial vehicle sales fell short of expectations; raw material prices rose more than expected.