2023 results are in line with our expectations

The company announced 2023 results: revenue of 33.167 billion yuan, +10.19% year on year; net profit to mother of 1,476 billion yuan, +61.26% year on year; 4Q23 revenue of 9.659 billion yuan, +19.71% year on month, +19.56% month on month; net profit to mother of 466 million yuan, +135.59% year on month. It met our expectations.

Development trends

Sales rebounded throughout the year, and the boom in SUVs combined with high overseas sales growth supported the annual results. In 2023, the company sold 310,008 vehicles, +9.93% year-on-year. In terms of models, sales of young passengers/trucks/pickups in 2023 were 80,223 units/62,815 units/59,660 units, respectively, +3.87%/-2.95%/-5.11% YoY, and sales remained stable; SUV sales were +39.05% YoY to 107,310 units, mainly due to a high increase in overseas sales. In terms of exports, export sales in 2023 increased 52% year-on-year to 95,696 vehicles, accounting for 30.87% of annual sales. Looking ahead, we believe that with the launch of new models such as the Jiangling Ford Bronco, and the smooth progress of overseas business with the company's cooperation with Ford, it is expected to form strong support for performance.

Profitability increased significantly, and cost control and cash flow performance were impressive. On the profit side, gross margin in 2023 was +1.14ppt to 15.38% year over year, and 4Q23 gross margin was +1.45pp/ -1.17ppt to 15.42% YoY. We believe that the improvement in profitability is mainly due to: 1) the continued realization of the scale effect due to increased sales; 2) the results of cost reduction measures are obvious. On the cost side, management/sales/R&D expense rates in 2023 were -0.38pp/ -0.24pp/ -1.05ppt to 4.42%/2.97%/3.88%, respectively, and lean management is becoming more and more perfect. In terms of cash flow, operating cash flow in 2023 was +400.78% year-on-year to 4.568 billion yuan, which is a significant improvement. We believe that benefiting from revenue-side product structure optimization, high sales growth, release of cost-side scale effects, and lean cost-side management, the company's profitability is expected to rise further.

Ford Ranger and Ford Bronco lead the new car cycle upward, driving growth through the intelligent transformation of electrification. The Ford Ranger was launched in December 2023, helping the market share of Jiangling pickup truck products rank second in the industry; in January 2024, the hardcore off-road vehicle Jiangling Ford Bronco was officially released, further boosting the company's SUV sales. In addition, the company is speeding up the transformation of intelligent layout and electrification. In September, it signed a strategic cooperation framework agreement with Baidu to focus on smart driving technology research and development. New electric platform SUV product projects, new platform electric light buses and light trucks, and electric export products are also in the R&D stage. The company announced that they will all be put into operation in 2025. We believe that while consolidating the advantages of light commercial vehicles, the company continues to expand its passenger car business. With electrification and intelligent upgrading, new growth space can be expected.

Profit forecasting and valuation

As new models gradually climbed down and profitability improved, we raised our 2024/2025 net profit by 5.7%/15.1% to 1,734 billion yuan/2,197 billion yuan. Current A shares correspond to 15.0/11.9 times P/E for 2024/2025. Maintaining an outperforming industry rating, considering the upward trend in the new car cycle, the target price for A-shares was raised by 31% to 34.0 yuan, corresponding to 17 times /13 times P/E in 2024/2025, corresponding to an upward space of 12.6%.

risks

The new models fell short of expectations, and market competition intensified.