Event: The company released its 2023 Annual Report and 2024 Quarterly Report. In 2023, it achieved operating income of 1,545 million yuan, -4.28% year on year; net profit attributable to mother was 216 million yuan, 2.39% year over year; realized net profit without deduction to mother was 206 million yuan, -4.35% year on year. 2024Q1 achieved operating income of 294 million yuan, -18.29% year on year; net profit to mother of 43 million yuan, -1.83% year on year; realized net profit without deducted net income of 34 million yuan, -21.78% year on year.
Comment:
The HVAC and refrigeration equipment business is under pressure, waiting for European heat pumps to recover. In 2023, the company's HVAC and refrigeration equipment achieved revenue of 1,197 billion yuan, -14.81% year-on-year, and gross margin increased by 1 pct year-on-year. The main reason for the pressure on the HVAC and refrigeration equipment sector is that the overall economic recovery in 2023 falls short of expectations and the impact of the industry's inventory removal cycle. We believe that in the medium to long term, European heat pumps are still expected to maintain a high growth rate. The company has a deep accumulation in the heat pump sector. The future increase in European heat pump penetration rate is expected to drive the company's business revenue growth and profit increase.
The new energy thermal management business is growing at a high rate, and the core subsidiary, Rujing Electronic Control, is 100% owned by the core subsidiary. In 2023, the company's NEV thermal management business achieved sales revenue of about 310 million yuan, an increase of 81% over the previous year. The company is speeding up the implementation of the fund-raising plan. It plans to add an annual production capacity of 1.8 million units in the field of thermal management systems for new energy vehicles, which is expected to further enhance the company's business scale and profitability in the field of new energy thermal management. Meanwhile, in 2023, the company completed the share acquisition of minority shareholders of Confucian Electronic Control. The company's shareholding ratio in Rujing Electronic Control increased from 73.33% to 100%, and the profit contribution of new energy thermal management is expected to increase further.
Equity incentives are tied to core employees. The company issued a stock incentive plan (draft). The total number of restricted shares to be granted is not more than 2,357.94 million shares, accounting for about 2.50% of the company's total share capital of 943117.68 million shares at the time the draft incentive plan was announced. The recipients are mainly company directors, executives and core technical personnel.
Profit forecast and rating: We expect the company's revenue for 2024-2026 to be 18.7/23.5/28.1 yuan, up 21%, 26%, and 20% year on year; net profit to mother will be 2.7/3.5/430 million yuan, respectively, up 24%, 29%, and 24% year on year. As of April 24, the market value corresponding to the PE valuation for 24 and 25 was 21/16 times, respectively, maintaining a “buy” rating.
Risk factors: risk of industry demand falling short of expectations; risk of iterative changes in technology; risk of raw material price fluctuations exceeding expectations; environmental protection and production safety risks, etc.