Incident: The company released its 2023 annual report. The company achieved total revenue of 86.15 billion yuan, +44.8% year-on-year, and net profit to mother of 5.32 billion yuan, +196.0% year-on-year. The company's gross profit in '23 was 14.24 billion yuan, +42.3% year-on-year, and gross margin was 16.7%, -0.1pp.
The vehicle business has achieved a sharp rise in volume and price, and improvements in product structure are beneficial to profit growth. In '23, the company's heavy truck business achieved revenue of 75.29 billion yuan, +49.7% year-on-year sales, with annual sales volume of 227,000 vehicles (domestic/export sales: 9.7/130,000 units), up 43.9% year on year, significantly higher than the overall industry growth rate of 35.6%. The market share climbed 1.3 pp to 24.9%, and the industry position was once again consolidated. Furthermore, the average unit price of a complete vehicle in '23 was 332,000 yuan/vehicle, +4.0% year on year, and the operating margin of the heavy truck business was 5.8%, +0.6pp year on year. The increase in price/profit levels was mainly due to the scale effect brought about by improved product structure and increased sales volume. In terms of segmentation, China Auto News shows that Sinotruk is in a leading position in several market segments. The market share in the main line transportation, muck truck transportation, AMT, cold chain transportation, mixers, dangerous goods transportation, special wrecker vehicles, and 4x2 tractors were 26.6%, 26.8%, 52.1%, 30%, 25.5%, 26.2%, 28.7%, 35.2%, and 26.5%, respectively. The Group's continued deep cultivation in market segments, compounded by an increase in the share of high-end heavy truck exports, is expected to drive steady growth in the company's profits.
The ability to control expenses is strong, and sales/management expenses have decreased significantly. The company's gross margin in 2023 was 16.7%, -0.1pp year on year, mainly due to a decrease in revenue contributions to high-margin financial services. In terms of expenses, sales/management expense ratios were 4.7%/5.4%, respectively, -0.2pp/-2.6pp year on year. The management expense ratio improved significantly year over year, reflecting the company's ability to control expenses. Looking at the net interest rate, the company's net interest rate in '23 was 6.8%, compared to +3.3pp. The company's proper and strong level of cost control will continue to benefit the increase in net interest rates.
The company issued an equity incentive plan to continue to consolidate its leading position. The company issued an equity incentive plan. The target revenue for 24/25/26 is not less than 948/1091/125.5 billion yuan, and the sales profit margin (total profit/operating income) is not less than 7.5%/8%/8.5%, respectively. This target corresponds to a total profit of 71.1/87.3/10.67 billion yuan. We believe that the release of this equity incentive plan shows the company's determination to continue to consolidate industry leaders, and the company's later performance is worth looking forward to in the context of the continuous recovery of the heavy truck industry.
Profit forecasting and investment advice. The company's net profit for 2024-2026 is estimated to be 64.7, 74.9, and 8.79 billion yuan respectively, corresponding to PE of 8, 7, and 6 times, maintaining a “buy” rating.
Risk warning: risk of industry recovery falling short of expectations; risk of exchange rate fluctuations; risk of unsustainable export sentiment; risk of fluctuating raw material prices; risk of capacity expansion falling short of expectations.