2023 net profit is in line with our expectations
The company announced its 2023 results: revenue of 8.07 billion yuan, +18.1% year over year; net profit to mother of 820 million yuan, +40.3% year over year. New energy vehicle gear revenue increased with the industry, demand for commercial vehicle gears picked up markedly, and the company's revenue/performance was in line with expectations. Looking at the fourth quarter of a year, 4Q23 achieved revenue of 2.2 billion yuan, +9.4% year-on-year; net profit to mother reached 230 million yuan, +40.3% year-on-year. The company previously released a forecast for the first quarter of 2024. In 1Q24, the company expects to achieve net profit of 21-230 million yuan, an increase of 22.8%-34.4% over the previous year.
By business, commercial vehicles and Minsheng Gear have seen impressive growth. Passenger cars/commercial vehicles/electric tools/construction machinery/motorcycles/civil gears/speed reducers and other revenues were +15.7%/+71.3%/-13.7%/-12.0%/-23.9%/+87.5%/+21.7% to 42.2/8.8/1.2/6.5/0.9/3.8/550 million yuan, respectively. 1) In the passenger car sector, traditional fuel vehicles bucked the trend and achieved positive growth in the market share of high-quality downstream customers such as Borg Warner and ZF, and new energy vehicles continued to grow; 2) the commercial vehicle demand cycle picked up markedly, compounded by the increase in AMT penetration rate, and the company's revenue showed greater elasticity; 3) Minsheng Gear continued to expand in the fields of sweepers and smart homes.
Management efficiency improvements have been steady and far-reaching, and the net interest rate increased by 1.6ppt year-on-year. In 2023, the company's gross margin was +1.1 ppt to 21.7% year on year. Continued production management reforms showed results. Among them, the high gross margin in the fourth quarter was mainly affected by high capacity utilization and depreciation. In 2023, the company's sales/management/R&D/finance expenses ratio was +0/-0.4/+0.4/-0.6ppt to 1.0%/4.1%/4.8%/0.4%, respectively. Under the combined influence, the company's net profit margin was +1.6ppt to 10.1% year-on-year.
Development trends
The gear track has a lot of room for growth, and the company seizes the high ground in technology. We believe that the industrial and civilian gear market space is over 100 billion yuan. Using high speed gears for new energy vehicles as an entry point, the company has established a leading position in innovative technologies such as R&D and modification of high-end gears, and is expected to continue to expand downstream growth. 1) Minsheng Gears:
The company lays out new markets such as sweeper actuators and ebike mechatronic modules, and we believe that the company's revenue is expected to continue to grow rapidly; 2) automobile gears: according to annual reports, continue to develop new processes, such as coaxial electric drive reducers, small welded differential assemblies, etc.; 3) robot reducers: the company's QCD control capabilities (a production management system) are outstanding, and the RV reducer market share is bucking the trend. We believe that industrial robots and humanoid robots are all expected to seize greater market growth.
Profit forecasting and valuation
We have maintained our 2024-2025 net profit forecast of 1.08/1.23 billion yuan. The current stock price corresponds to the 2024-2025 P/E of 18.4/15.0x, respectively. We keep our target price unchanged at 29.5 yuan, corresponding to the 2024-2025 P/E 25.2/20.5x, respectively. The current growth space is 36.6%, maintaining the “outperforming industry” rating.
risks
Demand for new energy vehicles fell short of expectations, and the expansion of new gear products in industries such as people's livelihood fell short of expectations.