2023 results fall short of our expectations
In 2023, the company's revenue was 744.71 billion yuan, +0.1% year on year; net profit of 14.11 billion yuan, -12.5% year on year. The operating profit of autonomous and joint venture brands met our expectations, and net profit affected by impairment calculation was lower than our expectations; net profit after deduction of non-return to mother was 10.05 billion yuan, +11.7% year over year.
Development trends
Independent brands are improving, the new energy structure has improved, and joint venture sales have declined and profits are steady. The company's total sales volume in 2023 was 5.02 million units, of which sales of its own brands increased to 55%. SAIC Passenger Vehicle, Shangtong Wuling, and Zhizi sold 99/140/40,000 units respectively, +18%/-12%/+665% over the same period. Shangtong Wuling's sales volume was under pressure but the structure improved, and the proportion of models in the 80,000-10,000 yuan price range increased.
Joint venture sales declined. SAIC Volkswagen and SAIC-GM sold 122/1 million units, -8%/-15% YoY; revenue was 1403/145.3 billion yuan, respectively, -15%/-11% YoY. Changes in SAIC-GM's product structure led to an increase in bicycle revenue. The export sales volume was 1.21 million units, +19% over the same period, and autonomous/new energy sources accounted for 92%/24%; the export product structure improved, with MG exceeding 600,000 units and SAIC Chase exceeding 100,000 units.
The overall gross profit performance was steady, and net profit was diluted by year-end depreciation. 4Q23 gross margin was about 12%, a slight decrease from month to month; cost control was good, and annual sales/management expenses ratio performance was stable, 4.0%/3.3%, respectively, -0.1pp/ -0.1ppt. Net profit was greatly affected by asset credit impairment accruals at the end of the year, leading to the dilution of 4Q23 net profit. It was mainly due to increased competition in the automobile industry and increased promotion, which led to inventory depreciation increases and loan impairment provisions for subsidiaries and auto finance companies. In terms of investment income, joint venture brand revenue declined. The company's investment income in 2023 was 14.95 billion yuan, -16.8% year-on-year, of which the joint venture's investment income was 10.72 billion yuan, -1% year-on-year. According to subsidiary companies, SAIC Volkswagen and SAIC-GM achieved net profit of 31.3/2.54 billion yuan, or -64.1%/-54.5% year-on-year.
Offshore and new energy sources continue to accelerate, and we are optimistic about increasing technological reserves and reducing costs due to scale effects. The company's sales target in '24 is about 5.45 million vehicles, and the new energy target accounts for 34%; the overseas sales target is 1.35 million units, and the new energy target is greater than 300,000 units. The company's 1Q24 retail sales volume is faster than wholesale, and inventory removal progress is good. Entering April, the wholesale pace gradually improved, and independent best-selling brand models continued to be launched. We are optimistic about the company's sales volume for 24 years. We expect the growth of overseas sales, optimization of the sales structure of our own brands, and the “lightweight launch” after passenger car companies' price reductions are expected to continue to drive growth in independent performance. At the same time, we are optimistic that the modular production capacity of the company's new energy models will drive cost reduction. With the introduction of self-developed key technologies such as solid-state batteries and high-computing power chips, the company is expected to better cope with price competition.
Profit forecasting and valuation
Based on more conservative profit expectations for joint venture brands, we lowered the 24E profit forecast by 16% to 16.5 billion yuan, and introduced the 25E profit forecast for the first time. The current stock price corresponds to 11/10x 24E/25EP/E. Based on the company's sales volume and revenue still in the leading position in the industry, it maintains an industry rating and target price of 17.5 yuan, corresponding to 12/12x 24E/25E P/E. There is 15% upside compared to the current stock price.
risks
Price competition is fierce, the transformation of new energy sources falls short of expectations, and going overseas faces policy risks.