2023&1Q24 results fall short of our expectations
The company announced 2023 & 1Q24 results: In 2023, the company achieved revenue of 1,540 billion yuan, +23% of the year on year, net profit of 165 million yuan, +43% year on year, 1Q24 achieved revenue of 409 million yuan, +24% year on month, +5% month on month, and net profit of 36 million yuan, -4% year on year, and +81% month on month, lower than our expectations, mainly due to the sharp decline in overall industrial chain prices and increased industry competition, and the price of the company's main business junction box was clearly under pressure.
Increased competition has put pressure on the price of junction boxes, and the connected wiring business is growing rapidly. In 2023, the company's diode/chip junction box revenue was +25%/-12% year-on-year to 1,01/245 million yuan. Due to downward price fluctuations in the industrial chain, the profits of downstream component customers continued to be compressed, and the price side of the company's junction box products was under pressure. In 2023, the average price of a single set of junction boxes was 15.5 yuan, down 3.0 yuan year on year, but the benefit cost side declined slightly. The gross profit margin of a single set was 3.2 yuan, up 0.5 yuan year on year. 1Q24 due to increased industry competition and pressure on component customer profits, the company's comprehensive gross margin fell 5.11ppt to 18.9% month-on-month. In terms of product structure, the share of relatively profitable chip junction boxes increased less than expected. In 2023, the company's chip junction box revenue accounted for about 20% of total junction box sales, a year-on-year decrease of about 6ppt.
The connected wiring harness business benefited from strong demand for overseas ground power plants. Revenue increased 118% year over year to 209 million yuan, and gross margin reached 33.68%, gradually becoming an important support for the company's performance.
Expenses due to share payments increased slightly, putting pressure on operating cash flow. In terms of expenses, the company's total expense ratio for the 2023 period was +1.76ppt to 7.32%, mainly due to the company's share payment expenses. Among them, sales/management/R&D/finance expenses rates were +0.19/+0.55/+0.63/+0.40ppt to 0.43%/3.25%/4.81%/-1.18%, respectively. In terms of cash flow, the company's net operating cash flow in 2023 was 33 million yuan, -88% year-on-year, mainly due to the inclusion of discounted funds from bank acceptance notes or letters of credit settled by customers into the financing cash flow.
Development trends
Develop the connected wiring harness and auto parts business, and the results are expected to be released one after another. Against the backdrop that the price and profit margin of the main business may be under pressure, the company pioneered a number of new growth curves. In 2023, the company rapidly expanded its connectivity harness business. In January 2024, the company successfully entered the auto parts industry through the acquisition of Jiangsu Jiangzhou Auto Parts Co., Ltd., focusing mainly on R&D, production and sales of automotive interiors and exteriors. We believe that the expansion of the business layout will help continuously improve the company's resilience to risks, and we are optimistic that the company will gradually integrate new businesses to release incremental profits.
Profit forecasting and valuation
Due to the overall price drop in the PV industry chain, the price and profit of the company's junction box may be under pressure. We lowered 2024E net profit of 30.6% to 217 million yuan, introduced 2025E net profit of 272 million yuan. The current stock price corresponds to 17.4x P/E in 2024, maintaining the outperforming industry rating, and lowering the target price by 28.6% to 40 yuan, corresponding to 22.1x P/E in 2024, with 27% upside compared to the present.
risks
Downstream demand falls short of expectations, cash flow risk, accounts receivable bad debt risk, trade policy risk.