2023 results fall short of market expectations
The company announced its 2023 results: operating income of 3,565 billion yuan, -7.16% year over year; realized net profit of 192 million yuan, +3.90% year over year; realized deducted non-net profit of 177 million yuan, +26.71% year over year. Looking at a single quarter, 4Q23 achieved operating income of 1,167 billion yuan, +16.81% year over month, and +72.53% month on month; net profit to mother was 0.07 billion yuan, -75.88% year on year, -80.78% month on month. The performance fell short of market expectations, mainly due to tax policy adjustments affecting the company's revenue.
Development trends
Taxes disrupted revenue performance, and net profit deducted steady growth. 1) The company completed key equipment insurance and supply tasks with high quality in 23 years. Revenue performance was briefly under pressure, mainly due to tax policy adjustments. The company's taxes and surcharges were +87.89% year over year to $40 million, mainly due to an increase in VAT payable. 2) The company's net profit in 2023 increased by 3.90% year-on-year, mainly due to the company's transfer of 100% of the shares in passenger cars in North China in '22, and the profit and loss from disposal of non-current assets reached 0.29 million yuan. After exclusion, net profit after deduction was +26.71% year-on-year, reflecting the company's continued high-quality development trend and steady growth in operating efficiency. 3) The company's gross margin/net margin in 2023 was +3.21/0.57ppt to 24.8%/5.4%, respectively, and profitability increased steadily.
Core product research and development progressed steadily, and the profits of subsidiaries increased significantly. 1) The company's R&D expenditure rate in 2023 was +1.50ppt to 6.88%, with annual R&D expenses of 245 million yuan. It is mainly due to an increase in the parent company's independent R&D investment. The company actively promotes the steady development of core products such as research and development of new quality equipment, guidance and control, and unmanned cruising. 2) The subsidiary Hengyang Electric achieved revenue of 220 million yuan in 2023, +13.2% year-on-year, and realized net profit of 70 million yuan, or +168.5% year-on-year, with a significant increase in profit. 3) The company expects to achieve revenue of 3.8 billion yuan and total profit of 290 million yuan in 2024, with a steady increase in efficiency under high-quality development.
Benefiting from the boom in the field of new quality, medium- to long-term incentive mechanisms gather momentum for long-term development. 1) The company is committed to promoting industrialization in the fields of guidance control, unmanned cruising, radio communication equipment, etc. Navigation control systems are widely used in precise guidance equipment, and the research and production capacity of the cruise series continues to improve. We believe that the company is expected to benefit from the boom in new quality fields such as precise guidance and unmanned equipment. 2) The company steadily implemented complex medium- to long-term incentives. The first stock option incentive in 2020 entered the exercise period, and implemented incentive mechanisms such as employee innovation contribution incentives and job dividends in 2022. We believe that the implementation of multi-level medium- to long-term incentive mechanisms is expected to improve the efficiency of corporate governance and gather momentum for long-term development.
Profit forecasting and valuation
Considering the company's downstream demand and the pace of product delivery, we lowered the company's 2024 net profit forecast by 41.6% to 211 million yuan, and introduced a net profit forecast of 278 million yuan for 2025. The current stock price corresponds to 45.8x P/E for 2025. We are optimistic about the company's competitive advantage in the fields of navigation control, unmanned cruising, etc., maintaining an industry rating, and lowering the target price by 24% to 10.20 yuan, corresponding to 55.2xP/E in 2025, with a potential increase of 20%.
risks
Product and order delivery fell short of expectations.