2023 results fall short of our expectations
The company announced 2023 results: revenue/net profit/net profit deducted from non-net profit of 151.21/55/ 422 million yuan, YoY +3.0%/+35.2%/+26.1%; of which 4Q23 revenue/net profit/net non-net profit of 33.77/0.77/ 0.36 billion yuan, -8.3%/+3.1%/+57.4% YoY, -25.0%/-60.7%/-78.7%; performance is lower than our expectations, which we think is mainly due to the cable business revenue confirmation pace, 4Q23 expenses and asset impairment Losses have a higher impact.
Development trends
The polymer materials business volume is rising rapidly, and the 24-year high growth is expected to continue. Cable polymer materials achieved revenue of 4.872 billion yuan in '23, +4.7% year-on-year, mainly due to 1) the increase in shipments brought about by the expansion of the company's production capacity in '23, and 2) the decline in ASP due to lower raw material prices. On the profit side, we estimate that the net profit of the ultra-high voltage business in '23 was around 350 million yuan, +31% year-on-year, and +1.5ppt, mainly due to 1) the increase in the share of ultra-high pressure product shipments. We estimate that 18-20,000 tons of ultra-high voltage shipments will be achieved in 23, and 2) the share of export products with higher gross margin will increase. We estimate that the share of export products with higher gross margins will increase. We estimate that we will export 90,000-100,000 tons in '23, accounting for about 20%. Looking ahead to 2024, we believe that the profit contribution of the polymer business is expected to remain high, mainly benefiting from 1) the expected implementation of new production capacity such as UHV Phase III and Huzhou shielding materials, 2) the increase in UHV Phase II production rate driving the growth of UHV shipments, and 3) a further increase in export share.
Losses in the charging business have narrowed, and losses are expected to continue to decrease in 24 years. The company's charging business revenue in '23 contributed 393 million yuan, +8% year over year. We estimate a net loss of about 90 million yuan, narrowing year on year, mainly benefiting from 1) operating side: the company achieved 670 million kilowatts of charging in '23, +58% year over year; 2) pile sales: We estimate the revenue of pile sales business to be around 140 to 150 million yuan, +30-35% year-on-year. Looking ahead to 2024, we believe that the increase in NEV ownership may drive an increase in the utilization rate of charging piles and an increase in the scale of pile sales. We expect the company's charging business to continue to reduce losses.
The cable business has benefited from scale effects and increased profitability. The company's revenue from the power cable business in '23 was 8.88 billion yuan, +4.4% year over year, gross profit margin of 12.3%, and +0.3ppt year over year. We think it was mainly due to scale effects. Looking ahead, we believe that power grid investment may maintain a high level of prosperity in '24. At the same time, the company is actively expanding new customers outside the grid. In terms of production capacity, the 1Q24 North Base is expected to be partially put into operation and support shipments. We are optimistic that the company's market share will increase and scale effect will drive performance growth.
4Q23 gross margin increased month-on-month, and asset impairment and period expenses affected profits. The company's 4Q23 gross profit margin was 16.5%, +2.1ppt/month-on-month, respectively, and profitability continued to improve; net profit margin declined month-on-month, mainly due to 4Q23 asset impairment losses of 20 million yuan and a period expense ratio of +6.3ppt month-on-month.
Profit forecasting and valuation
Considering that the charging business lost less than expected, we lowered the company's 2024/2025 profit forecast by 15.7%/10.7% to $716.911 million, and we lowered our target price by 14.3% to 12.0 yuan to maintain the outperforming industry rating. The current stock price and target price correspond to 2024/2025 13.3x/10.5x P/E and 17.4x/13.6x P/E, respectively, with 30.3% upside.
risks
The macroeconomic economy is declining, and the number of new energy vehicles has fallen short of expectations.