2023 results fall short of our expectations
The company announced results: revenue in 2023 +245% year-on-year to 1.54 billion yuan, net profit attributable to mother of 42.32 million yuan (loss of 87.27 million yuan in the same period last year), deducting non-net profit of 10.35 million yuan (loss of 130 million yuan in the same period last year). Among them, 4Q23 revenue was +207%/-4% month-on-month to 420 million yuan, net profit to mother -23% month-on-month to 9.47 million yuan, and net profit after deducting non-net profit to -1.29 million yuan month-on-month. The 2023 and 4Q23 results fell short of our expectations, mainly due to the month-on-month decline in sales in the heavy gas truck industry in November-December last year and the increase in the company's gross margin of gasoline engine catalysts falling short of our expectations.
Development trends
The boom in heavy natural gas trucks in 2023 contributed to a high increase in revenue from internal combustion engine exhaust catalysts. The company's internal combustion engine exhaust catalyst business revenue in 2023 was +244% to 1.51 billion yuan, mainly benefiting from the boom in the heavy natural gas truck market, batch supply to major passenger car customers, and the full implementation of diesel non-road machinery national four and light vehicle national six b emission regulations. According to data from Jiaotong Insurance, in 2023, the natural gas heavy truck industry sold 152,000 units/year on year, and the domestic sales penetration rate reached 24.8% /year on year +16.9pct. We estimate that the company's market share of natural gas heavy truck catalysts in 2023 is about 20%. In the gasoline engine catalyst business, major passenger car customers have abundant orders and continued to increase volume, and have successfully expanded new customers and new projects.
A number of favorable factors contributed to improved profitability, and expenses were relatively stable during the period. The company's exhaust catalyst sales volume in 2023 was +169% year-on-year to 2.979 million units, and the capacity utilization rate of the new catalyst intelligent manufacturing park project increased to 84.12%. The company's gross profit margin in 2023 (gross profit calculation without tax and surcharges) was +6.3pct to 11.9% year-on-year, mainly benefiting from favorable factors such as increased capacity utilization, release of scale effects, and lower costs of raw materials and precious metals. The company's sales/R&D/management/financial expenses ratio in 2023 was 3.0%/5.3%/2.6%/0.1%, respectively, and the cost for the period reached 170 million yuan, which is relatively stable.
Optimistic about the structural opportunities for heavy natural gas trucks in 2024, the company's performance is expected to grow steadily. We judge that the sales volume of the heavy truck industry is expected to increase by 20% to 1.1 million units in 2024 due to factors such as renewal and replacement, stable exports, and the volume of heavy natural gas trucks. The upward cycle of the industry continues. We judge that heavy natural gas trucks will continue as a structural growth opportunity in 2024 and are expected to achieve a year-on-year increase of more than 50% to 240,000 units. The company announced in December 2022 that it has obtained supporting products for the Weichai natural gas heavy truck engine WP13NG road country 6b model and its extended family. We expect that as the company's support ratio in Weichai increases, the company's market share of natural gas heavy trucks is expected to increase rapidly in 2024, benefiting from the boom in gas vehicles.
Profit forecasting and valuation
Considering that the gross margin increase in the gasoline engine catalyst business fell short of our expectations, the 2024 profit forecast was lowered by 30.5% to 140 million yuan. A profit forecast of 220 million yuan for 2025 was introduced for the first time. Considering the company's leading domestic position in the field of exhaust catalysts, it maintained an outperforming industry rating. The current stock price corresponds to 19.2/12.1 times the 2024/2025 P/E, the target price was lowered by 30.6% to 29.0 yuan, corresponding 25.0/15.7 times the 2024/2025 P/E, with 29.8% upward space.
risks
Demand for heavy natural gas trucks falls short of expectations, the risk of fluctuations in raw material prices, and new business development falls short of expectations.