Incident: 2024Q1 achieved operating income of 3.341 billion yuan, -21.16% year over year, and net profit to mother of 80 million yuan, +26.96% year over year.
The revenue side continues to focus on core businesses
Continuing the 4Q23 contraction in non-core businesses led to a decline in revenue. We expect the core compressor business to grow at the same frequency as the domestic and foreign sales of complete downstream refrigerators will improve. The year-on-year decline on the 24Q1 revenue side was mainly due to the company's raw materials and accessories business continuing the 23H2 trend and the decline in revenue. We expect the company to continue the 23Q4 trend, focus on compressors, and actively reduce part of the raw material trade revenue, causing the overall growth rate to decline in the single quarter. In addition, the company withdrew from the sweeper business in January 2024, which also had a certain impact on the apparent revenue growth rate.
Profit levels continue to improve
Revenue structure optimization improves profit levels. 2024Q1's gross margin was 9.99%, +1.13pct year on year, net margin was 3.46%, +1.32pct year on year. Gross margin increased year-on-year. We expect that the divestiture of non-core businesses will reduce the drag on profits accordingly, and the increase in the core compressor structure will contribute to profit levels. In 2024Q1, the company's quarterly sales, management, R&D, and financial expense ratios were 1.2%, 2.47%, 2.51%, and -0.47%, respectively, +0.27, +0.29, +0.51 pct. The year-on-year decline in the financial expense ratio was mainly due to an increase in exchange earnings and interest income. The 24Q1 investment income was $0.19 billion, +340.53% year-on-year, mainly due to the increase in forward foreign exchange contract delivery income and the proceeds from the sale of shares in Grambo.
Adequate cash on hand
The company has sufficient cash on its account. On the balance sheet side, the company's 2024Q1 monetary capital+transactional financial assets were 5.611 billion yuan, 32.17% year-on-year, of which monetary capital was +49% year-on-year and +25% month-on-month, and the company's account capital was sufficient. Inventory was $1,304 billion, +16.87% year over year, and the total amount of notes receivable and accounts receivable was $3.158 billion, +3.92% year over year. On the turnover side, the company's 2024Q1 inventory, accounts receivable and accounts payable turnover days were 45.45, 68.98, and 78.52 days, respectively, +14.75, +17.4, and +20.86 days compared to the previous year. On the cash flow side, the net cash flow from 2024Q1's operating activities was -442 million yuan, 8.67% year-on-year, of which cash inflows from sales of goods and provision of labor services were $1,944 billion, or -28.84% year-on-year.
Investment advice: The company is a leading refrigerator compressor company. 23H2 is being dragged down by the raw materials and accessories business, but the core business compressor growth is good. In the medium to long term, commercial use and frequency conversion are expected to increase the profitability center, while businesses such as NEV are expected to contribute to new growth poles. The company's net profit for 24-26 is estimated to be 4.4/5/53 billion yuan, respectively, and the corresponding PE is 12.7x/11.1x/10.3x, respectively, maintaining the “increase in holdings” rating.
Risk warning: demand for refrigerator compressors falls short of expectations; new business expansion falls short of expectations; risk of rising raw materials and shipping prices; share of inverter and commercial compressors falls short of expectations.