Key points of investment

Incident: Changan Automobile released its 2023 annual report. We achieved full-year revenue of 151,298 billion yuan, +24.78% year over year, net profit of 11.327 billion yuan, +45.25% year on year, net profit without return to mother of 3.782 billion yuan, +16.19% year on year; Q4 2023 achieved revenue of 430.91 billion yuan, +20.03%/+0.88% year on month, net profit of 1,445 billion yuan, +60.76%/-35.18% year-on-year, net profit without return to mother of 169 million yuan, -72.66%/-91.95% YoY.

The sharp rise in volume and price boosted the year-on-year increase in revenue for the whole year, with a double increase in 2023Q4 compared to the same period last year. In terms of revenue, from an operating perspective, the company's overall vehicle business sales volume in 2023 was 2.5531 million vehicles, +8.82% year over year, continuing to lead own-brand car companies; in terms of price, bicycle ASP (vehicle revenue/Chongqing+Hebei+Hefei sales volume) in 2023 was 97 million yuan, +18.71% year over year. On a quarterly basis, 2023Q4 vehicle sales volume was 683,400 units, +2.71%/+4.51%. Among them, autonomous new energy sales were 167,400 units, +45.67%/+28.12% month-on-month. Despite increased Q4 discounts, 2023Q4 revenue continued to grow steadily under model structure optimization combined with high unit price NEV products.

The volume of overseas business led to a month-on-month increase in gross profit in 2023Q4, and the fee control effect improved quarterly. In terms of gross margin, the company's gross margin in 2023 was 18.36%, -2.13pct year on year. We judge that it was mainly disrupted by multiple factors such as dark blue consolidation and increased competition in the industry forcing price cuts for some models; 2023Q4 achieved a gross profit margin of 19.55%, -1.34/+1.2pct, a month-on-month increase or due to overseas business growth with higher gross margin in Q4 (2023Q4's overseas sales volume +105.94%/+8.53%, respectively). In terms of period expenses, the company's expense ratio for the 2023 period was +1.25pct. Among them, the sales/management/R&D/finance expenses rates were 5.05%/2.71%/3.95%/-0.59%, and +0.81/-0.20/+0.39/+0.25pct, respectively. The increase in sales and R&D expenses was mainly affected by the dark blue parallel; the expense ratio for the 2023Q4 period was +3.04pct year on year, and the sales/management/R&D/finance expense rates were +2.05/-0.10/+0.90/+0.19pct, respectively. Month-on-month ratio -0.15/-2.20/-0.55/-0.36pct, fee control is effective.

Joint venture losses disrupted 2023Q4 profits, and the basic market for autonomous fuel vehicles stabilized. In terms of net profit to mother, the company's Q4 net profit and net profit after deducting non-return to mother declined sharply month-on-month. Mainly due to non-recurring profit and loss disturbances such as large depreciation of Changan Ford and the expansion of losses in joint ventures such as Avita and Mazda, the investment income was -688.42% month-on-month. If the impact on joint venture and joint venture investment income is deducted, 2023Q4's consolidated business (mainly including autonomous fuel vehicles+Qiyuan+Deep Blue) net profit without return to mother was 2,569 million yuan, +8.4 billion yuan. 3%, considering that the two new energy brands are still in the investment loss period and Q4 Discounts have increased, and the profitability of the company's autonomous fuel vehicle business is still strong. If own-brand new energy vehicles are launched in 2024, the company's rise in independent profits is expected to be realized.

Plans for new electric smart vehicles are in full swing in 2024, and the beginning of the product cycle will help new energy brands reverse losses at an accelerated pace. According to the annual report and information disclosed at the 2024 Changan Automobile Global Partner Conference, in 2024, the company will launch 5 new energy models, including the C928 and Yidong Series; in terms of new energy, it will launch 8 new energy models, including the Qiyuan E07 (which will debut at the 2024 Beijing Auto Show and start blind), the Qiyuan C798, and the Deep Blue G318 (which is expected to be released on March 18, 2024. It is expected to be released in June), and the Avita 15 (which is expected to be released in 2024Q3). 07 (True incense version already released in New facelifted models such as the Deep Blue SL03 and S7 (all SL03 pure electric versions have been updated in February 2024, and the extended Dark Blue SL03 and S7 have all been released in the new Honor Edition) will also be launched one after another. The launch of the smart electric new product cycle is expected to boost the company's NEV business volume and achieve the Group's goal of selling 750,000 NEVs in 2024.

Investment advice: The company's 2023 performance is basically in line with our previous expectations, but considering that competition in the domestic new energy market is intensifying or squeezing the company's profit release space to a certain extent and that the new energy transformation in the joint venture sector will still bring short-term pain, we adjusted the company's profit forecast for 2024-2025 and added a profit forecast for 2026. Net profit to the mother is expected to be 98.17/116.79/14.185 billion yuan respectively (the original 2024/2025 forecast was 102.74 billion yuan 12.62 billion yuan, respectively), corresponding EPS was 0.99/1.18/1.43 yuan (the original 2024/2025 forecast was 1.04/1.27 yuan, respectively). Based on the closing price on April 24, 2024, the corresponding PE was 16X/14X/11X, respectively. We believe that the basic market of the company's fuel vehicle business is stable. Driven by multiple factors such as “the beginning of the new energy product cycle, the steady progress of overseas production capacity construction, the new energy business of central vehicle companies is expected to be assessed separately, and joint venture depreciation is expected to optimize asset quality+continuous deepening cooperation with Huawei”, we believe that the company's intelligent electric transformation will accelerate and drive the implementation of performance, and the upward logic is clear in the medium to long term, so it maintains a “buy” rating.

Risk warning: Risks such as changes in industry policies, intensification of the “price war” trend in the industry, rising raw material costs, falling short of expectations in launching and delivering new models, and falling short of expectations in sales performance of new models.