Incident: The company released its 2023 financial report. For the year, the company achieved operating income of 7.474 billion yuan, +34.93% year-on-year, realized net profit of 891 million yuan, +27.59% year-on-year, and realized net profit of 855 million yuan without return to mother, +36.78% year-on-year, and EPS of 2.15 yuan.
Our analysis and judgment:
The business diversification process is progressing smoothly, and the rise in production capacity for new products has led to a steady increase in gross margin. In 2023, the company continued to promote the diversification process of business expansion from mechanical braking products to intelligent electronic control, mechanical steering, and lightweight products. Mechanical braking products/intelligent electronic control products/mechanical steering products/other products achieved revenue of 3.368 billion yuan/3.296 billion yuan/483 million yuan/74 billion yuan respectively, +26.55%/+38.81%/+74.29%/+45.23%. The new product business grew faster than mechanical braking, bringing new momentum to the company's performance growth. Along with the acceleration of the company's new product delivery, production capacity climbed to drive gross margin growth. In 2023, the gross margins of the company's four major products were 21.22%/20.14%/13.67%/20.24%, respectively, -0.82pct/+0.11pct/+4.19pct/3.01pct. The gross margin of the new product business all increased to varying degrees, driving the overall gross margin recovery.
The cost rate was well controlled during the period, and R&D expenses grew steadily. In 2023, the company's sales/management/financial expenses rates were 1.12%/2.34%/-0.49%, respectively, and +0.06pct/+0.05pct/+0.23pct, respectively. The increase in sales expenses was due to the increase in warranty costs brought about by the accelerated expansion of the company's business. The company's products are the core area of domestic replacement of parts, and quality assurance plays an important role in competition between the company and foreign manufacturers. The increase in management expenses mainly comes from employee remuneration, and overall control is relatively good. In 2023, the company's R&D expenses were 450 million yuan, +18.97% year-on-year, and the R&D cost rate was 6.02%, -0.81 pct year on year. As the company's new products entered mass production and delivery period one after another, compounded by the continuous accumulation of results in early new technology research and development, the growth rate of R&D expenses slowed down, which helped the company continue to improve product profitability.
Ongoing orders continue to accumulate to accelerate capacity expansion to unlock potential for performance growth. The company has formed a good market reputation, leading the domestic replacement process for chassis products. The new fixed-point process is faster than the mass production and delivery process, and the products are “in short supply”. In 2023, the company added 47 fixed projects for EPB products, 33 new mass production projects, 50 new mass production projects, 25 new mass production projects, 17 new fixed-point projects for ADAS products, 11 new mass production projects, 10 new fixed-point projects for mechanical steering column products, and 4 new mass production projects. The current production capacity can no longer meet the demand for new fixed-point mass production, and the company has accumulated considerable orders. In order to unleash the potential for performance growth, the company will continue to accelerate production capacity expansion in 2023. In response to the current scarce production capacity of new products, the company will add 500,000 sets/year EPB caliper assembly capacity, 350,000 sets/year WCBS valve body machining capacity, 600,000 sets/year AC6 actuator assembly capacity, 360,000 sets/year WCBS assembly assembly production capacity, 1 EPB rear body machining production line, 15 steer-saving machining production lines, etc., and will add production capacity in line with the company's increasingly mature new product development technology. Accelerate Satisfaction The company's customer order requirements help the company maintain a high growth trend in performance.
Investment advice: We expect the company's revenue from 2024 to 2026 to be 101.53/126.45/14.741 billion yuan, and net profit to mother will be 1,237/15.96/1,956 billion yuan, respectively. The corresponding EPS will be 2.85 yuan, 3.68 yuan, and 4.52 yuan respectively, maintaining the “recommended” rating.
Risk warning: 1. Risk of downstream customer sales falling short of expectations; 2. Risk of new technology R&D progress falling short of expectations; 3. Risk of increased market competition.