A new upward cycle of the industry has begun, and going overseas opens up new space for Yutong's growth. Sales of large and medium-sized buses experienced 6 consecutive years of decline. The industry rebounded steadily in 2023. The recovery in domestic sales combined with a high export growth rate began, opening a new cycle for the Chinese bus industry. In 2023, sales of large and medium passenger vehicles reached 88,900 vehicles, up 4.4% year over year. As a leading domestic large and medium-sized bus company, Yutong experienced a steady recovery in sales in 2023, with total sales volume reaching 36,500 units, an increase of 20.9% over the previous year. The domestic market share increased, and the domestic market share increased, opening up new space for overseas trips. Looking ahead to 2024, the domestic tourist bus market will continue to improve, supporting domestic sales. The overseas market is expected to continue to grow at a high rate. The overseas new energy cycle is compounded by the “Belt and Road”, and Yutong exports are expected to continue to achieve three increases in volume, price and profit.
Overseas markets: Broad export space, increasing contribution from new energy
The overseas market has about twice as much space as the domestic market. With the gradual recovery of the global bus market and the electrification of buses in developed countries such as Europe and America, and the acceleration of Chinese bus companies going overseas under the “Belt and Road”, room for growth in overseas markets can be expected. In terms of exports, with the continuous improvement of product strength and overseas channel services, China's export sales volume exploded. Export sales volume in 2023 was 34,000 vehicles, an increase of 74.3% over the previous year. Overseas environmental regulations drive the penetration of new energy sources, and there is plenty of room for improvement. It is expected that they will continue to bring opportunities for incremental orders for China's bus exports. Bus leaders represented by Yutong are expected to fully benefit from the increase in space and share.
Competitive advantage and pattern: The layout of the entire industry chain is supported, and leading products and technology have created export advantages. The reason behind Yutong's growth from a small factory in Zhengzhou to a global bus leader is that it has built a broad moat. Looking forward to the future, the global bus industry has entered a recovery channel. The company's share has a lot of room to increase, and future sales and performance are expected to return to relatively rapid growth. 1) Competitive advantage: Based on scale effects, the entire industry chain layout brings bonuses, and continuous technological leadership is the core. Scale effect+full industry chain layout help enhance competitiveness at home and abroad with low cost, high product reliability and perfect after-sales service. 2) Export share: Yutong products are exported globally, and the export share continues to rise, gradually forming a “one super strong” competitive pattern. In 2023, Yutong exported 10,139 buses, accounting for 31.9% of total sales, and the export share reached 31.5%.
3) Profitability: The combined effects of cost reduction and efficiency have led to a steady recovery in gross margin, and going overseas has led to a further increase in profit margins.
Stable dividends: Capital expenditure has slowed, and sufficient cash flow guarantees high dividend stability. We believe that in the future, the company EBIT is expected to resume an upward trend, capital expenditure or enter a downward channel; depreciation and amortization will remain relatively stable in the short term, and are expected to gradually decline in the long term. Increased sales have led to a decline in bike share depreciation, improving bicycle profitability. The trend of improving cash flow is clear, and free cash flow is expected to remain at a high level in the future. Considering Yutong's tradition of high dividends, it is judged that future dividends are expected to maintain a high ratio.
Investment advice: export volume, Yutong takes the lead
As a global bus leader with a wide moat, it has good long-term growth+continuous high dividend capacity, highlighting investment value. The domestic market has accelerated reshuffle in the post-subsidy era, and there is plenty of room to increase the share of new energy sources; in overseas markets, global strategies advance, and exports highlight profit levels; intelligence+ fuel cells bring new volume; the company's capital expenditure is slowing down, and the reduction in battery costs is compounded by large-scale effects to support the continuous improvement of the company's performance. The company continues to maintain high dividends. The 2023 dividend distribution was 1.5 yuan per share (tax included), with a total distribution of 3.32 billion yuan. The dividend rate was 182.8%, and the dividend rate was about 6.22%. The company's net profit for 2024-2026 is estimated to be 28.2 billion yuan, 3.44 billion yuan, and 4.07 billion yuan, respectively. Corresponding PE is 18.95X, 15.53X, and 13.13X, respectively, maintaining a “buy” rating.
Risk warning
1. Global bus sales recovery progress and exports fell short of expectations; 2. The increase in NEV market share fell short of expectations; 3. Overseas competition intensified and profit margins declined; 4. Risk that profit forecasting assumptions were untrue or fell short of expectations.