2024 results are in line with our expectations
The company announced its 2023 annual report: 2023 revenue +59% to 1.83 billion yuan, net profit to mother +94% YoY to $147 million, net profit +72% YoY to 115 million yuan; of which 4Q23 revenue was +88%/+42% YoY to 640 million yuan, net profit to mother +487%/+98% YoY to 49.75 million yuan, minus non-net profit +720% YoY to RMB 30.27 million.
The company announced the 1Q24 quarterly report: 1Q24 revenue +67%/-12% to 570 million yuan, net profit to mother +30%/+6% year-on-month to $52.66 million, after deducting non-net profit +58%/+69% month-on-month to 51.15 million yuan. The 2023 and 1Q24 results were in line with our expectations.
Development trends
The three major business volumes in 2023 contributed to high revenue growth, and fee control led to increased profitability. Looking at business by business in 2023:1) EGR and injection systems business revenue +97% to 550 million yuan, gross margin -0.4 pct to 23.9% year over year. The company's EGR products continue to have leading advantages in light diesel vehicles, and have developed downstream fields such as non-road machinery, hybrid passenger vehicles, and heavy natural gas trucks, covering customers from mainstream domestic automakers such as BYD, Geely, Guangzhou Automobile, and Chery. The company shipped 73,900 injection system components in 2023, accounting for about 50% of the market share of the heavy natural gas truck industry, benefiting from strong demand for gas vehicles. 2) Revenue from the new energy business was +93% to 80 billion yuan, and gross margin -3.5pct year-on-year to 12.0%. The company has developed Tier 1 customers such as Star Drive, Jinkang Power, Ferdi Power, and Bosch on the two major customer bases in North America and United Auto Electronics, to indirectly support mainstream NEV companies such as Geely, Cyrus, and BYD. 3) The precision parts business is mainly responsible for the wholly-owned subsidiary Weiyan Precision, with revenue of +5% over the same period in 2023 to 570 million yuan. In 2023, the company's sales/management/R&D/finance expense ratio was -0.1/-0.8/-0.4/-0.6pct to 1.0%/3.5%/4.1%/1.2%. The fee control effect was remarkable, which led to an increase in net interest rates.
The main business is expected to continue to blossom in 2024, and the aerospace business will create a long-term growth point. Referring to the China Automobile Association, the sales volume of the electric/hybrid passenger car industry in 1Q24 was +8%/+76% year-on-year to 121/790,000 units.
Referring to Jiaoqiang Insurance, the number of licenses registered in the heavy natural gas truck industry in 1Q24 was +135% compared to the same period last year to 45,000 vehicles. Looking ahead to 2024, we believe that the company's EGR business is expected to benefit from the growth of downstream hybrid models such as BYD DM-i, Geely, and Chery; the natural gas injection system business continues to benefit from the growth of downstream natural gas heavy trucks; the motor core business benefits from rapid revenue growth due to production capacity and customer advantages, and profitability is expected to improve as capacity utilization rises. The company is engaged in the manufacture of aerospace products, precision mold tooling, and automation equipment through its subsidiary Weiyan Zhongjia. We believe that the aerospace business has great potential for development.
Profit forecasting and valuation
The profit forecast for 2024 and 2025 remains unchanged. The current stock price corresponds to 16.0/12.1 times 2024/2025 P/E multiples. Considering the downward trend in the valuation center of the auto parts sector, we lowered our target price by 8.6% to 20.75 yuan, which corresponds to 21.0/15.9 times the 2024/2025 P/E ratio, and there is 31.7% upward space compared to the current stock price.
risks
Production capacity in the new energy business fell short of expectations, production and sales of heavy natural gas trucks fell short of expectations, and competition in the industry intensified.