2023 results beat market expectations
The company announced its 2023 results: in 2023, it achieved operating income of 168.59 billion yuan, +6.5% year-on-year; net profit to mother of 7.214 billion yuan, +0.15% year-on-year. Corresponding to 4Q23 revenue of 47.03 billion yuan, +4.6% year-on-year, +5.5% month-on-month; net profit to mother was 2.47 billion yuan, +6.4% year-on-year, +30.2% month-on-month.
4Q achieved positive revenue growth in the context of a high base. The increase in gross margin surpassed the industry's month-on-month, and performance exceeded market expectations.
Development trends
The increase in the share of customers outside the industry led to steady revenue growth, and new energy products continued to be released. The company's customer structure was further optimized in '23, and the sales ratio of customers outside SAIC Motor Group was +3ppt to 52% year-on-year. By business, revenue for interior and exterior parts, metal molding, and mold/functional parts/electronic and electrical parts/heat-processed parts was 1241.7/107.3/300.9/80.3/620 million yuan, respectively, +8.6%/-13.9%/+3.9%/+16.1%/+2.1%, respectively. The interior and exterior of the core business remained steady. Among them, Huayu Vision recorded double-digit growth; revenue for electronic and electrical components increased year-on-year, mainly benefiting from the volume of Huayu Magna electric drive system products. In addition, drive motor sales grew rapidly, and it was targeted by the Zero Run project. Furthermore, Shanghai Huizhong achieved revenue of 17.83 billion yuan, with steady performance.
Gross margin was under pressure throughout the year. 4Q gross margin improved markedly month-on-month, and fee control results led to an increase in net profit. The gross profit margin was 13.0% in 2023, -0.85ppt. The pressure on overseas gross margin was greater. The company determined that it was mainly due to the combined effects of customer price reduction pressure, rising production capacity for new overseas projects, increased overseas labor costs, rising energy prices, and exchange rate fluctuations. The company will improve gross margin levels by continuously promoting VAVE (value analysis and engineering) joint cost reduction with customers and carefully acquiring new businesses. 4Q23 gross profit margin was 14.2%, +2.3ppt. We believe that in addition to quarterly revenue surges driving scale effects, these efforts have already been implemented. 4Q23 management and R&D rates declined markedly year-on-year, reflecting the effectiveness of fee control.
Healthy cash flow guarantees steady development, and multiple measures help profits counter external pressure. Looking ahead, despite intense external competition and ongoing pressure on the industrial chain, the company actively carries out cash management, reduces cash expenses for non-essential fixed asset investments, and simultaneously adjusts accounts receivable and payables to cope with the tight trend of capital payments and settlements to achieve a healthy level of cash flow. The dividend payout ratio will remain above 30% in 2023. We believe that in the future, as the scale effect of overseas business becomes prominent and new businesses such as seats and safety parts are successfully added, it is expected to drive the company's overseas revenue to maintain steady growth. Furthermore, the company actively expands customers, follows industry trends, and continuously promotes cost reduction and efficiency, and cross-border cooperation. We expect gross margin to remain stable.
Profit forecasting and valuation
We maintain our 2024 profit forecast and first introduced a 2025 profit forecast of 8.55 billion yuan. The current stock price corresponds to 6.7x/6.2x 24E/25E P/E. Maintaining an industry rating and a target price of 22.5 yuan, corresponding to 9x/8x 24E/25E P/E, there is 34.7% upside compared to the current stock price.
risks
Downstream annual downward pressure is increasing; overseas business integration falls short of expectations.