FY23 and 1Q24 results are in line with our expectations
The company announced FY23 and 1Q24 results: FY23 revenue of RMB 20.065 billion, +18.6% YoY; net profit to mother of RMB 1,391 billion, +376.9% YoY. Among them, 4Q23 revenue was 5.635 billion yuan, +33.2% YoY, +6.5% month-on-month; net profit to mother was 431 million yuan, +471.5% YoY, +8.2% month-on-month. 1Q24 revenue was 5.045 billion yuan, +15.0% year over month, -10.5% month on month; net profit to mother was 441 million yuan, +106.3% year on year, +2.3% month on month. The results were in line with our expectations.
In 2023, the company's Thai factory net profit was 914 million yuan, +14.5% year on year; net profit margin was 20.5%, +1.5ppt year on year. The Serbian plant lost 0.82 billion yuan. With the release of production capacity at the Serbian base, we believe that the benefits of the Serbian base can be gradually realized.
Development trends
Sales increased 26% year over year in '23, and sales target increase of 21% in '24. By the end of 2023, the company's tire production capacity reached 91.34 million, including 73.5 million semi-steel tires; in 2023, the company's tire production and sales volume was 79.12 million units/77.98 million, respectively, +20.4%/+26.1% year-on-year, mainly due to strong domestic automobile production and sales in 2023 combined with improved tire export demand. 1Q24's tire production was 21.55 million pieces (+25.9% YoY, -1.8% QoQ); sales volume was 18.98 million pieces (+13.5% YoY, -16.1% QoQ); the average price of a single tire increased 7.3% month-on-month, mainly due to the company's internal product restructuring. The goal of the company's business plan for 2024 is to increase tire sales by 21% year over year. Furthermore, in January 2024, the company's first giant tire went offline, further improving the off-highway product system; the current gross margin level of giant tire products is high, and we believe it is expected to bring new performance growth points to the company.
Continue to improve the supporting structure and increase the proportion of new energy and high-end support. The company's supporting side focuses on developing the NEV and high-end brand markets, and continuously improving the supporting business structure. In 2023, the company made breakthroughs in key global vehicle systems such as China, Germany, Europe, America, and Japan, and added a number of supporting mass production projects; in the field of new energy, the company has successfully supplied major series such as GM Wuling, BYD Dynasty, and Ocean, and new energy vehicle companies such as Dongfeng Nissan, Honda, FAW Hongqi, Geely, and Cyrus. We expect the gross margin of the supporting business sector to continue to improve as the share of the company's middle and high-end and overseas support companies increases.
The anti-dumping duty rate for semi-steel tires has declined, and the competitiveness of the company's Thai base is expected to improve. According to the company's announcement, the US anti-dumping duty rate on Thai passenger car and light truck tires was lowered in January 2024. The corporate tax rate was reduced from 21.09% to 4.52%, a decrease of 16.57ppt. We believe that the profit level of the company's Thai factory is expected to increase. Furthermore, according to the company's estimates, it is expected that the anti-dumping duty of about US$47 million (about 333 million yuan) will be returned from the US Customs and Border Protection.
Profit forecasting and valuation
We maintain 2024/2025 net profit of 2,292 billion yuan/2,892 billion yuan. The current stock price corresponds to 15.3 times the 2024 price-earnings ratio and 12.1 times the 2025 price-earnings ratio. Maintaining an outperforming industry rating and maintaining a target price of 27.1 yuan, corresponding to 17.4 times the price-earnings ratio of 2024 and 13.8 times the price-earnings ratio of 2025, there is 14.1% room for upward compared to the current stock price.
risks
Prices of raw materials have risen; the pace of commissioning additional production capacity has fallen short of expectations; trade barriers have increased.