The company is a leading domestic supplier of fuel cell systems. The company mainly designs, develops and manufactures fuel cell systems and electric stacks for commercial vehicles such as buses and trucks, and has established stable long-term cooperative relationships with domestic commercial vehicle manufacturers such as Beiqi Foton, Yutong Bus, and Geely Commercial Vehicle. According to data from the Ministry of Industry and Information Technology, as of February 2024, the Ministry of Industry and Information Technology announced a total of 157 Yihuatong engines, accounting for 15.0%; in 2023, 1,548 hydrogen fuel cell vehicles equipped with Yihuatong engines were insured, accounting for 20.2%. The company continues the vertical integration of industrial chain resources and extends upward to the fields of electric stacks and membrane electrodes. Yihuatong Hydrogen Energy Technology was established, and hydrogen energy was deployed to form a two-wheel drive.

With policy and economical two-wheel drive, fuel cell system installations are expected to achieve a high growth rate. According to data from the China Automobile Association, China's cumulative production of fuel cell vehicles in 2015-2023 is 18,000 units, which is still a gap of 32,000 vehicles from the 2025 target of 50,000 vehicles. Fuel cell vehicle production is expected to double for two consecutive years from 2024-2025. On the policy side, at the end of 2023, some cities in the five major city demonstration clusters have successively implemented incentive funds for the first year, with a cumulative total of 770 million yuan as of January 2024. According to the central government and local finance 1:1 support estimates, the implementation of incentive funds is expected to exceed 1.54 billion yuan, and the cash flow of enterprises in the industry is expected to improve. In terms of economy, according to Orange Club data, the 49t hydrogen heavy truck has been reduced to 1 million yuan in 2024, and “large-scale” + “localization” will improve the economy of hydrogen energy heavy trucks.

Product strength creates leading barriers, and the industrial chain layout increases profit margins. 1) Deep technology accumulation and continuous product iteration. The company continues to develop core technical indicators such as environmental adaptability, durability, and reliability of fuel cell systems. The key performance of the product is close to the international advanced level; 2) The first-mover advantage is obvious, and the customer share is leading. The company has established long-term cooperative relationships with leading companies such as Yutong Bus and BAIC Foton through demonstration operation, joint undertaking of national projects, and cooperation in the development of fuel cell models, etc., forming a first-mover advantage; 3) integrated industrial chain layout. The company established Huafeng through a joint venture agreement with Toyota, acquired Shanghai Shenli Technology, and extended its shareholding in Yihydrogen Technology upstream to electric stacks and membrane electrodes.

Profit forecast and investment advice: The company is a leading hydrogen fuel cell system enterprise, with obvious advantages in product strength and customer stickiness. We expect the company's revenue for 2023-2025 to be 801/11.70/1,725 billion yuan, respectively, and net profit to mother of -2.26/ -1.25/ -023 million yuan, respectively, corresponding to 5.4 times PS in 2024, maintaining a “buy” rating.

Risk warning: Fuel cell vehicle sales fall short of the expected risk, the implementation of rewards and supplements fall short of the expected risk, and the risk that performance forecasts and valuation judgments fall short of expectations.