Incident: The company released its 2023 annual report, achieving revenue of 10.51 billion yuan, a year-on-year increase of 21%; net profit to mother of 1.20 billion yuan, an increase of 33%; deducted non-net profit of 1.16 billion yuan, an increase of 37% year-on-year. 23Q4 achieved revenue of 2.74 billion yuan, down 4% month-on-month; net profit to mother of 410 million yuan, up 42% month-on-month; deducted non-net profit of 390 million yuan, up 40% month-on-month.
The company's operating cash flow performance was strong. In '23, the company's operating activities generated net cash flow of 748 million yuan, an increase of 70.78% over the previous year. Among them, the Q4 operating cash flow turned positive, with a net profit of 712 million yuan in a single quarter, mainly due to the increase in the company's sales scale, stable cash balance and expenditure for various operating projects, and the company's large bill discounts and maturity amounts in the fourth quarter.
Profitability is steady, and net interest rates continue to rise. 2023Q4, the company's gross margin was 24.28%, up 0.4 pct from month to month; the net sales margin was 15.04%, up 4.79 pct from month to month, and the company's profitability remained stable.
We believe that in the face of price reduction pressure, the company can also improve profitability: on the price side, although the company has annual declines for major customers every year, the company has the ability to maintain the basic stability of net interest rates through better optimization of customer and product structures, as well as continuous internal cost reduction, efficiency, and efficiency improvements.
Overseas bases are gradually being put into operation, and the production capacity layout continues to expand. In 2023, the company's overseas revenue was 530 million yuan, an increase of 118% over the previous year, including revenue contributed by the Hungarian factory and revenue from domestic exports to overseas. The company announced that it intends to use no more than 30 million euros of self-raised capital to increase investment in Kodali in Germany, increasing the total investment from 60 million euros to 90 million euros. On October 26, 2023, the company announced that it intends to use no more than 32 million euros of self-financing to increase its investment in Kodali, Hungary, from 40 million euros to 72 million euros. The capital increase will mainly be used for engineering construction of new production lines, purchase of machinery and equipment, and supplementary working capital. At the same time, the company has also further improved its customer system, continued to expand domestic and foreign markets, and signed a “Material Sale and Supply Contract” with a well-known European lithium battery manufacturer, agreeing that the company will supply the lithium battery manufacturer with the covers required for approximately 350 million sets of square lithium-ion batteries within the validity period of the “Material Sale and Supply Contract”. Currently, the German production base and Swedish production base in the company's 3 overseas production bases are in the trial production stage for supporting customers; the first phase of production at the Hungarian production base has reached full production, and the second phase of equipment continues to be put in place. We expect that with the construction of the second plant in Hungary and the expansion of plants in Germany and Sweden, the company's overseas revenue is expected to increase significantly in '24.
We expect the company's net profit from 24-26 to be 1,461, 17.98, and 2,189 billion (the value was 14.23 billion and 1,714 billion before 24-25), corresponding to PE valuations 16.1, 13.1, and 10.8 times. Considering the company's leading market share and stable profitability in the lithium battery structural components industry, we maintain a “buy” rating.
Risk warning: downstream demand falls short of expectations, increased risk of market competition, risk of changes in raw material prices, capacity expansion falls short of expectations, etc.