Key points of investment:
Zheng Coal Machinery disclosed its 2023 annual report on March 29. In 2023, the company achieved total revenue of 36.423 billion yuan, up 13.67% year on year; net profit to mother was 3.274 billion yuan, up 28.99% year on year; the company's 2023 profit distribution plan is to distribute 8.4 yuan (tax included) for every 10 shares to all shareholders.
The coal machine business continues to grow steadily, and auto parts profits recover
The company's 2023 annual report achieved total operating income of 36.423 billion yuan, up 13.67% year on year; net profit to mother of 3.274 billion yuan, up 28.99% year on year; deducted non-net profit of 3,027 billion yuan, up 50.13% year on year. Performance is growing rapidly.
On a quarterly basis, Q1-Q4's revenue in 2023 was 9.216 billion, 9.07 billion, 9.038 billion, and 9.163 billion, respectively, up 13.83%, 21.03%, 9.54%, and 11% year-on-year respectively; Q1-Q4 net profit to mother was 783 million, 898 million, 786 million, and 807.6 million, respectively, up 14.86%, 14.74%, 58.02%, and 39.98% year-on-year respectively.
View the 2023 annual report by business:
1) The coal machine business achieved operating income of 18.854 billion yuan, an increase of 12.51% over the previous year, and achieved net profit of 3,052 billion yuan, an increase of 21.48% over the previous year;
2) The auto parts business achieved operating income of 17.565 billion yuan, a year-on-year increase of 14.94%, and achieved net profit of 222 million yuan to mother, a year-on-year decrease of 26.64%. The net profit of the auto parts sector decreased by 79.1372 million yuan compared to the same period of the previous year, excluding the impact of ASIMCO's goodwill impairment preparation plan for ASIMCO Shanxi in the same period of the previous year. The net profit of the auto parts sector increased by 14,055779 million yuan over the previous year, of which net profit for the SEG2023 year was 18.547.21 million yuan, an increase of 131.4.368 million yuan over the previous year, an increase of 2.4 times over the previous year, mainly due to SEG business restructuring, cost reduction and efficiency Contributions from measures to improve profitability that have achieved significant results.
Profitability increased steadily, gross margin of the coal machine business increased by 2 percentage points. The company operated steadily, and various profit indicators increased steadily.
The company's gross profit margin and net profit margin in the 2023 annual report were 22.05% and 9.53%, respectively, compared with +1.39pct and +1.32pct, respectively. The main reason is that the gross margin of the company's main business has improved, and at the same time, cost control is good.
The company's sales, management, R&D and financial expenses rates for the 2023 annual report were 3.09%, 3.46%, 4.28%, and 0.45%, respectively, +0.56pct, +0.03pct, -0.02pct, and +0.02pct, respectively. Apart from the rapid increase in sales expenses, the company's other expenses are relatively stable. The company's sales expenses in 2023 increased by 307 million yuan over the same period last year, up 37.50% year on year. Mainly due to increased revenue, related product quality assurance and service costs have increased.
By business, the gross margins of the company's coal machine and auto parts businesses were 29.26% and 15.56% respectively, +2pct and +0.39pct, respectively. The gross margin of the coal machine business increased sharply by 2 percentage points, mainly due to lower raw material prices and lower costs.
Demand for coal is steady, and large-scale equipment renewal policies accelerate the intelligent promotion of integrated coal mining. The company's coal machine business is the R&D, design, production, sales and service of comprehensive coal mining equipment, parts, and intelligent intelligent coal mining control systems to provide safe, efficient and intelligent first-class comprehensive coal mine mining technology, complete equipment solutions and services for global coal customers. The company is the absolute leader in the hydraulic support industry for coal mills, and is in a leading position in the industry in the intelligent integrated mining of coal mines.
China is the world's largest energy consumer and producer. Energy is a prerequisite and important support for China's economic prosperity and sustainable development. Sustainable economic development is closely related to energy demand. Based on China's basic national conditions of “rich in coal, poor in oil, and low in gas”, it has been determined that coal will continue to maintain China's main energy position for a long time to come. In 2023, China's raw coal production was 4.71 billion tons, an increase of 3.4%; annual coal consumption increased by 5.6%, and coal consumption accounted for 55.3% of total energy consumption, down 0.7 percentage points from the previous year.
Since the eight ministries and commissions jointly issued the “Guiding Opinions on Accelerating the Intelligent Development of Coal Mines” in 2020, intelligent coal mining has accelerated, and the demand for intelligent mining equipment and systems from coal mine customers has continued to increase.
In June 2021, the National Energy Administration and the State Mine Safety Supervision Administration issued the “Guidelines for Intelligent Coal Mine Construction (2021 Edition)”, which clarifies the general requirements, overall design, construction content, and guarantee measures for intelligent coal mine construction.
According to the “Guiding Opinions on the High-Quality Development of the Coal Industry in the 14th Five-Year Plan” issued by the China Coal Industry Association, by the end of the “14th Five-Year Plan”, the number of coal mines in the country was controlled at around 4,000, and more than 1,000 intelligent coal mine mining work surfaces had been built, and the degree of mechanization of coal mining in coal mines was around 90%. At present, the speed of intelligent construction of coal mines in China has reached a new height, and 1,651 intelligent mining work surfaces have been built at 758 coal mines across the country. There is still room for intelligent transformation of comprehensive coal mining. The State Council is promoting large-scale equipment upgrades. Under the promotion of corresponding supporting policies, it is expected to accelerate the progress of the comprehensive intelligent transformation of old coal mine equipment, which will have an obvious impact on the company's business.
As the world's largest comprehensive coal mining equipment R&D and manufacturing enterprise, Zheng Coal Machinery continues to promote the research and development of high-end coal equipment and intelligent technology with an advanced technology research and development system. The company held a factory review of the 10-meter super-high hydraulic stand and the launch ceremony for the 300,000 stand of Zheng Coal Machine, and used this as an opportunity to show key customers the intelligent manufacturing advantages and intelligent integrated solutions of the industry's first digital native factory; it appeared at the industry exhibition with “digital and intelligence” as support, which received great feedback. The company reached a record high in all aspects of orders, repayments, output value, output, per capita efficiency, and R&D results in 2023. Among them, the international market ordered 1,360 billion yuan throughout the year, an increase of more than 40% over the previous year. The future will continue to benefit from the intelligent transformation of comprehensive coal mining and large-scale equipment upgrades.
The auto parts business recovered its profits and grew into the second main business with the NEV situation. Auto parts products mainly include automotive power system parts, chassis system parts, starters and generators, mainly including two major subsidiaries ASIMCO and SEG (SEG).
The main products of ASIMCO's business are power system components, chassis system components, including cylinder heads, piston rings, camshafts, valve seats, etc. for commercial vehicle engines, noise reduction, damping and braking seals for passenger cars and new energy vehicles, and newly launched intelligent air suspension products. ASIMCO's sales revenue increased 24% year over year, with NEV parts business revenue of about 340 million yuan, a year-on-year growth rate of more than 100%, accounting for more than 22%.
SONGE, formerly known as the Starter and Generator Division of the German Bosch Group, is the world's leading supplier of starter and generator technology and services. The company rapidly increased its market share of 12V and 48V BRM in Europe and the US, and accelerated the development of the new energy drive motor business while consolidating traditional business advantages.
Mass production of 48V BRM second-generation products equipped with self-developed inverters has been launched, and 48V BRM orders have been received from several leading European car companies. Volvo projects have already been mass-produced in Europe and China. High-voltage relay products received orders from global auto parts groups and achieved mass production. 800V high-voltage flat wire adhesive fixed rotor products were successfully mass-produced and delivered in batches, and have the capacity for large-scale industrial production of new energy electric drives.
In 2023, many indicators of China's automobile industry reached record highs, driving the automobile industry to achieve effective qualitative improvement and reasonable quantitative growth, and became an important driving force for industrial economic growth. In 2023, automobile production and sales reached a total of 30.61 million units and 3.09 million units, up 11.6% and 12%, respectively, from the previous year, and production and sales reached record highs. According to the China Association of Automobile Manufacturers, the Chinese automobile market will continue to maintain a steady, moderate and positive development trend in 2024, showing growth of more than 3%.
The automobile market is gradually recovering, driven by factors such as large-scale central and local policies such as large-scale equipment upgrades and consumer trade-in, automobile marketing policies and market price fluctuations in many places, and the launch of a large number of new models by enterprises. The rapid adjustment of the traditional automobile market structure and product structure has accelerated, and the penetration and development of new energy vehicles has accelerated. The company will continue to dig deeper into the passenger car market, steadily expand the commercial vehicle market, vigorously explore the new energy market, and enhance market competitiveness in various fields. The company's auto parts division has gradually turned a loss into a profit in recent years, and its performance has gradually recovered. It is expected to become Zheng Coal Machinery's second main business.
Profit forecasting and valuation
The company is a leading enterprise in hydraulic support for coal mills and intelligent integrated mining equipment, fully benefiting from the intelligent coal mine construction process. At the same time, the auto parts sector has gradually released its vitality by introducing employee shareholding and improving the incentive and restraint mechanism for business partners after experiencing a painful period of acquisition, and is expected to become the main business contributing to the company's second performance in the future. We forecast that the company's revenue for 2024 to 2026 will be $40.652 billion, $44.587 billion, and 48.059 billion, respectively, and net profit to mother will be 3,945 billion yuan, 4.448 billion yuan, and 4.959 billion respectively. The corresponding PE is 7X, 6.21X, and 5.57X, respectively. The company's fundamentals are growing steadily, the valuation is low. The profit dividend for 23 years is 0.84 yuan per share. The dividend rate is 5.43% based on the closing price on April 2, which has good investment value.
Risk warning: 1: The growth rate of fixed asset investment in the coal industry falls short of expectations; 2: coal demand and price conditions fall short of expectations; 3: Auto parts business development falls short of expectations; 4: Raw material prices fluctuate.