Event: On March 27, the company released its 2023 annual report. For the full year of 2023, the company achieved a total operating income of 7.47 billion yuan (+34.9% YoY); net profit of 890 million yuan (YoY +27.6%); realized net profit of 856 million yuan (YoY +36.78%) after deduction, of which operating income of 2.37 billion yuan (YoY +27.7%, +18% YoY) in a single quarter; realized net profit of 297 million yuan (YoY +34.4%, YoY +23.95%).
The full-year results for 2023 are in line with expectations, and intelligent electronic control helped the company grow rapidly. By business segment: 1) Intelligent electronic control: 2023 sales volume is about 3.72 million units, +48.93% year over year, mainly benefiting from the volume of wire-controlled moving products; 2) Lightweight: 2023 sales volume is about 10.19 million units, +31.32% YoY, mainly due to the company's Mexican plant starting production in Q3; 3) Disc brakes: 2.847,000 sets, +26.55% YoY. 4) Mechanical steering: sales volume of 2.33 million sets in 2023.
The company's gross margin stabilized, and the fee control effect significantly led to a month-on-month increase in net profit margin. 1) Y23 gross profit margin 22.57%, YoY +0.13pct; Q4 gross profit margin 23.1%, YoY -0.2pct, +0.5pct month-on-month.
① As the work of increasing the utilization rate of corporate line control and reducing costs continues to advance, the gross margin of corporate line control products also continues to increase. ② Wanda switched to a marked increase in gross margin. ③ Product structure impact: Low-margin disc brakes are growing faster, and the overall gross margin of mechanical braking products declined year-on-year. 2) The company's Q4 net profit margin was 12.5%, +0.6pct year on year, and +0.6pct month-on-month. ① The scale effect of R&D was gradually highlighted. Q4 R&D cost rate was 6%, -1.2pct year on year. ② The fee control effect is obvious. The Q4 management fee rate was 1.8%, -0.1 pct year over year, and -0.4 pct month-on-month.
New products such as WCBS2.0 and EMB are progressing at an accelerated pace, raising convertible bonds to expand production capacity and strengthen the leading domestic position: 1) For the first time, 2023Q3's line control products have been designated by an internationally renowned automobile manufacturer. The project life cycle is 6 years, totaling about 440,000 units. 2) The company's next-generation line control system, WCBS 2.0, can meet the safety redundancy requirements for L3 level autonomous driving. Among them, WCBS 2.0 has dual hydraulic power units and expandable EBD and ESC functions; WCBS 2.0 EHC products achieve electronic control redundancy through front wheel EHC and rear wheel EPB. At present, the company's next-generation line control products have been designated by many OEMs and are expected to be mass-produced in the first half of 2024. 3) The company continues to promote line control capacity layout. By the end of '23, the company's line control engine currently had 6 production lines, with a total production capacity of about 1.8 million units. According to the convertible bond plan issued by the company on January 5, after the construction of this fund-raising project is completed, it is possible to increase the movable production capacity of 1 million more sets of lines. 4) The first round of functional samples of the company's EMB has been successfully developed, and winter testing and verification has been carried out. The company's convertible bond raising project laid out 600,000 sets of EMB production capacity ahead of schedule.
The Mexican plant has begun production, and lightweight production capacity has increased dramatically: 1) Domestic: According to our analysis in the report “Bethel: Line Control Circuit Leader, Layout Line Control Shift to Build a Platform Enterprise in the Chassis Domain”, the total production capacity of the first and second phases is about 9 million sets of steering joints, corresponding to an output value of about 1 billion yuan. According to the company's convertible debt plan, the production capacity plan for the third phase steering joint, control arm, and subframe products continues to expand. It is estimated that by the end of '25, the total production capacity of the third phase will reach 6+ million sets, with a corresponding output value of about 1.8 billion yuan. 2) North America: Currently, the first phase of Mexico has switched to saving production capacity of 4 million units, corresponding to an annual output value of about 500 million yuan, and was officially put into operation in September 23; the second phase of the Mexico project has planned a lightweight production capacity of 7.2 million units, corresponding to an output value of about 1.5 billion yuan. It is expected to be officially put into operation by the end of 24.
Investment advice:
Maintaining the buy-A investment rating, we expect the company's net profit to be 11.7 billion yuan, 13.4 billion yuan, and 1.74 billion yuan respectively in 2024-2026, corresponding to the current market value. PE is 22.4, 18.5, and 15.5 times, respectively.
With a valuation of 30 times for 2024, the target price for 6 months is 77.7 yuan.
Risk warning: Competition in the industry is intensifying, and production capacity investment progress falls short of expectations.