2023 results are in line with our expectations
The company announced results: full year revenue of 2023 of 602.32 billion yuan, +42% year on year; net profit to mother of 30.4 billion yuan, +80.7% year over year; net profit after deducting non-return to mother of 28.46 billion yuan, +82% year on year. Corresponding to 4Q23 operating income of 180,04 billion yuan, YoY +15.1% /month-on-month; net profit to mother of 8.67 billion yuan, +18.6% YoY /-16.7% YoY; net profit of 9.11 billion yuan after deducting non-return to mother, +25.3% /month-on-month -5.6%. The non-net profit of 4Q23 bicycle deduction was 90,000 yuan, -14.7% YoY.
Development trends
4Q23 Bike prices declined but gross margin was steady. Investment in R&D was increased, and year-end rebates and discounts led to an increase in sales rates. Excluding BYD batteries, 4Q23 bike revenue was about 155,500 yuan, a slight decrease of about 2,600 yuan over the previous month. In 4Q23, BYD's gross margin was 21.2%. Excluding BYD's electronic estimate, the gross margin of the automobile business was 25.1%. It was basically the same from month to month, and the performance was relatively steady. In terms of cost, 4Q23 R&D expenses were 14.64 billion yuan, +31.5% over the previous month, corresponding to the 2023 R&D expenses of 35.98 billion yuan. We judge that it is mainly driven by the company's emphasis on technological innovation, increasing intelligent investment, and expanding the size of the R&D team. The 4Q23 sales rate was 4.4%, with year-on-month increases. We judge that this is due to the increase in centralized rebates and discounts at the end of the year.
Cash reserves are abundant; Honor Edition continues to be popular, and the new round of technology and product cycles are strengthening. The company has rich cash reserves, with cash on hand at the end of 2023 of 109.1 billion yuan, an increase of about 53.3 billion yuan compared to 3Q23. Since February, the company has successively launched Honor models and achieved “lower electricity than fuel”. The cumulative number of vehicles sold in March reached 185,000. We estimate that sales volume in March will reach around 300,000 units. At the same time, we believe that the company is entering a new round of technology and product cycles, compounding the advantages of scale, and is expected to better cope with fierce market competition. The company plans to launch a next-generation hybrid technology, DM5.0. The fuel consumption for 100 kilometers can reach 2.9 L, and the comprehensive battery life is close to 2000 km. It is expected that the switch will be completed one after another in May. In terms of new products, we believe that new products such as Dynasty L series and Sea Lion series are expected to be launched in 2Q24.
With cost+scale+technical advantages at the bottom, high-end and international growth can be expected. Market competition is fierce, and we believe that the company is expected to maintain leading overall product and cost competitiveness through vertical integration, “technical fish pond” and scale advantages. Looking at 1Q24 briefly, we believe that although the launch of the Honor Edition may put pressure on bike revenue month-on-month, scale effects, battery cost reduction, and improved sales structure are expected to drive the company's 1Q24 profitability to remain relatively stable. Looking at the annual level, we expect the company's overseas sales volume to reach 400,000 to 500,000 vehicles in 24, high-end brands are expected to maintain a high year-on-year increase, and product structure improvements brought about by high-end and internationalization are expected to support profits.
Profit forecasting and valuation
We maintain our 2024/25 earnings forecast. The current stock price corresponds to the 2024E 15.7/13.4xp/E for A/H shares, maintaining the outperforming industry rating and the target price of 256/266 HKD for A/H shares, corresponding to 2024E 19x/17x P/E for A/H shares. There is 21%/31% upside compared to the current stock price.
risks
Intelligent implementation falls short of expectations; exports face policy risks.