Core views
In the first quarter of 2024, the company's revenue, net profit to mother, and net profit after deducting non-net profit were 566 million yuan, 53 million yuan, and 51 million yuan respectively, up 66.78%, 30.18%, and 57.80% year-on-year respectively. As a leading independent EGR and motor core business, the company has plenty of orders in hand. The EGR business will benefit from the recovery of commercial vehicles, the release of heavy gas trucks, and the accelerated penetration of hybrid passenger vehicles; the continuous improvement of the customer and product structure in the motor core business, the implementation of production capacity in 24 years is conducive to the release of ongoing orders, and it is optimistic that the company's future performance and valuation will improve.
occurrences
The company released its 2023 annual report and 2024 quarterly report. The company's revenue for the full year of 2023 was 1,827 billion yuan, up 59.11% year on year; net profit to mother was 147 million yuan, up 94.28% year on year; after deducting non-net profit of 115 million yuan, up 71.91% year on year. The company's revenue for the first quarter of 2024 was 566 million yuan, up 66.78% year on year; net profit to mother was 53 million yuan, up 30.18% year on year; after deducting non-net profit of 51 million yuan, up 57.80% year on year.
Brief review
Revenue increased year-on-year for the full year of 2023, benefiting from the continued expansion of the two major businesses, EGR and New Energy. In 2023, the company's revenue, net profit attributable to mother, and net profit after deducting non-net profit were 1,827 million yuan, 147 million yuan, and 115 million yuan respectively, +59.11%, +94.28%, and +71.91%, respectively. On the revenue side, the two core businesses of EGR products, injection systems, and new energy are the main factors driving high revenue growth. Specifically: 1) EGR and injection systems business: 2023 revenue of 562 million yuan, +97.33% year-on-year. On the one hand, production and sales of EGR components all grew by more than 40% year on year. Among them, production and sales of new energy hybrid products were strong, and sales of 597,300 hybrid EGR modules were sold, and revenue was +883.2% compared to the same period last year. On the other hand, against the backdrop of falling gas prices in 2023, the release of heavy natural gas trucks led to an expansion in market demand, and sales of related injection system components surged to 74,000 units, +4826.67% over the same period last year. 2) New energy business: Revenue of 801 million yuan in 2023, +92.74% year-on-year, mainly due to a significant increase in motor orders and a “sharp rise in volume and price” in product sales.
New energy vehicle motor component revenue reached 705 million yuan, +75.86% year over year, of which quantity and ASP were +61.28% and +9.04%, respectively. 3) Precision parts and other businesses: 2023 revenue of 465 million yuan, +3.67% year-on-year. Among them, the NEV precision parts business grew rapidly, with sales revenue reaching 96 million yuan, +15.26% over the same period last year.
On the profit side, the year-on-year growth rate of net profit and net profit deducted from non-net profit in 2023 was higher than revenue, mainly due to the company's good cost control situation and the low profit base due to the company's active expansion and increased investment in production capacity in '22. In addition, changes in fair value and investment income in '23 also contributed to part of the increase. On a quarterly basis, 23Q4's revenue, net profit to mother, and net profit after deducting non-net profit were 640 million yuan, 50 million yuan, and 0.30 million yuan, respectively, +87.69%, +486.50%, and +719.74% year-on-year, and +41.55%, +97.92%, and +19.60%, respectively. It is mainly due to factors such as the release of the company's on-hand orders and the volume of profitable businesses such as EGR and injection systems. The 24Q1 company's revenue, net profit to mother, and net profit after deducting non-net profit were 566 million yuan, 53 million yuan, and 51 million yuan, respectively, +66.78%, +30.18%, and +57.80% year-on-year, respectively, -11.64%, +5.86%, and +69.01%, respectively. Among them, the year-on-year increase in profit was mainly due to continued revenue growth in core businesses such as EGR and New Energy. The month-on-month increase mainly benefited from the company's good control of various expenses.
The net interest rate in '23 was +1.85pct year-on-year, and 23Q4-24Q1's profitability continued to improve. The company's gross profit margin and net profit margin in 2023 were 17.79% and 8.14%, respectively, -1.13pct and +1.85pct year-on-year, respectively. The decline in gross margin was mainly driven by higher raw material and labor costs (more than 60%); the increase in net profit margin was mainly due to steady control of the company's expenses. Specifically, the company period/sales/management/R&D/finance expenses rates in 2023 were 9.80%/1.04%/3.51%/4.06%/1.19%, respectively, and -2.01pct/-0.10pct/-0.80pct/-0.47pct/-0.64pct, respectively. On a quarterly basis, the company's profitability indicators improved sequentially for two consecutive quarters, or due to order-driven core business volume, reduced cost-side pressure, and continued steady cost control. The gross profit margin and net profit margin of the 23Q4 company were 17.20% and 7.51%, respectively, -1.26pct and +5.84pct year-on-year, respectively, and +0.46pct and +1.73pct month-on-month, respectively.
The 24Q1 company's gross profit margin and net profit margin were 18.59% and 9.39%, respectively, -2.26pct and -2.72pct, respectively, and +1.39pct and +1.89pct month-on-month, respectively.
The company's EGR and new energy businesses are progressing smoothly and are expected to drive a steady upward trend in performance. Currently, the company's business is mainly divided into three segments: EGR systems, new energy business, and precision components. 1) EGR business: Starting in 2023, we will open new space in the T4 stage of non-road construction machinery, the passenger car hybrid EGR market, and heavy natural gas trucks. First, in 2023, the company successfully developed key customers such as China Yituo, Cummins, Yunnei Power, Quanchai, Xinchai, Changfa, and Changchai in the non-road market, and provided product support with its main models. With the implementation of non-road T4 phase emission regulations at the end of 2022, related businesses will contribute positively to improving the performance of the EGR sector. Second, at present, the company's hybrid EGR customers have covered leading domestic customers such as BYD, Geely, Guangzhou Automobile, Chery, SAIC, and Wuling Syke, and sales of related supporting products are expected to increase rapidly along with BYD's DM-i platform models. The rest of the customer business is also being produced in small batches. Third, gas prices will continue to decline in 2024. On the basis of a recovery in the heavy truck industry, the penetration rate of heavy gas trucks will continue to increase. The company's natural gas heavy truck injection system and EGR system business will continue to benefit from downstream demand. In terms of the injection system business, the company has been climbing upward since 2023, with a domestic market share of about 50% in 23; in the heavy truck EGR business, the industry's import substitution trend deepened, and 23H2 achieved small-batch production. 2) New energy business: In 2023, the company's drive motor core stock customer business increased steadily, and many new energy best-selling models from new customers contributed to an increase. Currently, the customer and product structure of the company's motor core business is being improved. End customers include mainstream car companies such as BYD, Celis, Geely, Changan, Xiaomi, Ideal, NIO, SAIC, and Chery, as well as adding direct supply to customers such as Star Drive, Jinkang Power, Fudi Power, and Bosch. In terms of products, the company insists on increasing the depth of support and investing and expanding in the field of drive motor semi-assemblies. In 2024, as Longsheng New Energy continues to release new production capacity, the business will continue to grow at a high rate.
3) Precision parts business: In the field of automotive passive safety systems, door lock systems, and seat systems in 2023, the company received the top three domestic market share; the related parts business supporting leading domestic new energy vehicle companies also began to expand, and businesses such as copper rows, controller covers, and balance plates increased significantly; electric drives and electronic control systems successfully developed the Jinkang Power copper row project, which indirectly supported mainstream models such as the M7; in the field of motor booster motors, the international giant Mahle electric drive project was developed in 2023 to further provide the company with strong performance Growth points. In addition, Weiyan Seiko also entered the supplier system of Dongfeng Zhixin Technology, Jikrypton Auto, and Huayu Sandian, which is conducive to continuing to expand market share and consolidate its position in the industry.
Investment advice
The company is a dual leader in the independent EGR and motor core business, and various businesses are full of orders; the EGR business benefits from the recovery of commercial vehicles and the accelerated penetration of hybrid vehicles, and the succession of new production capacity in the motor core business is conducive to the release of on-hand orders. The company's net profit for 2024-2025 is estimated to be 230 million yuan and 320 million yuan. Corresponding to current stock prices, PE is 15X and 11X, giving it a “buy” rating.
Risk analysis
1. The industry boom falls short of expectations. Domestic economic recovery rebounded steadily in 2024, but the exact pace remains to be seen. Demand in the automotive industry may fluctuate accordingly; it will still take time to fully implement the trade-in policy for consumer goods such as automobiles, which will affect the recovery process of industry demand.
2. The competitive pattern of the industry has deteriorated. Domestic and foreign parts suppliers compete. With changes in supply factors such as technological progress and new production capacity investment, industry competition may intensify in the future, and the company's market share and profitability may fluctuate.
3. The progress of customer development and mass production of new projects fell short of expectations. The company is accelerating the expansion of new customers. Considering the fluctuation in the pace of development of new model projects by car companies, there may be fluctuations in the fixed project cycle within a specific period of time; in addition, the company's new production capacity construction may be affected by uncontrollable factors, causing mass production progress to fall short of expectations.