1Q24 results fall short of market expectations
The company announced 2023 results: revenue of 6.312 billion yuan, +16% year over year; net profit to mother of 1,867 billion yuan, +49% year over year. The performance is in line with our expectations. The company announced 1Q24 results: revenue of 1,452 billion yuan, +11.5% year on year; net profit to mother of 302 million yuan, -5.4% year on year; net profit after deduction of 377 million yuan, +22.37% year on year. The performance was lower than market expectations, mainly due to non-recurring losses of 74.97 million yuan, of which the loss was about 100 million yuan due to the company's holding of Hongxin C&D shares.
Development trends
There was a high increase in overseas arm style in '23, and there was a slight decline in scissor forks. By product, 1) Arm type: Achieved revenue of 2.45 billion yuan in 2023, +68%. Among them, overseas arm style was promoted smoothly, sales were +141.28% year over year, and overseas arm style accounted for 47% of the total arm type. We expect overseas arm sales to surpass domestic sales in 24 years. 2) Scissor Fork: Achieved revenue of 3.01 billion yuan in 2023, compared to -9%. We determine that it is mainly due to factors such as overseas sales using fixed production and the increase in CMEC shareholding ratio in the fourth quarter, sales volume that did not generate terminal sales, and the old production line was unable to adapt well to the production of new models. There are still ~7 percent of scissor fork products sold overseas. 3) Mast: Achieved revenue of 504 million yuan in 2023, +5% year-on-year, and remained stable.
1Q24 revenue was relatively lackluster, and gross margin increased significantly. We judge that the revenue performance in the first quarter was poor due to factors such as not much increase in new production capacity in the first quarter+the low season for traditional domestic sales, the time required for European subsidiaries to confirm receipt, and the increase in US CMEC shareholding ratio, and the deductions sent to CMEC but did not generate sales volume for terminal sales. The 1Q24 gross profit margin was 41.1%, +3.52ppt year over year. We judged that overseas sales accounted for a relatively high share in the first quarter, compounded by continuous improvement in gross margin and exchange rate factors.
Sales/R&D expenses increased, and the 1Q24 net margin was greatly affected by non-financial losses. In 2023, the company's sales/management/R&D/finance expense ratios were +0.79/-0.03/-0.23/+0.39ppt, respectively, and 1Q24 sales/management/R&D/finance expense ratios were +0.58/-0.54/+0.39/ -1.76ppt, respectively. The net interest rate for 1Q24 was 20.8%, -3.73ppt year over year, mainly due to the impact of Hongxin C&D stock losses - 6.8ppt.
The CMEC equity settlement has been completed, and we are optimistic about the accelerated release of arms in North America. According to the company's annual report for '23, the CMEC share settlement was completed in April, with CMEC revenue of US$408 million and net profit of US$44.78 million in 2023. Currently, the Phase 5 plant is climbing a slope, and we estimate that production capacity can reach ~150 units/month. We expect to continue to increase and support the company's accelerated boom volume in North America (target shipment in 2024 ~ 2000 units).
Profit forecasting and valuation
The profit forecast for 2024 and 2025 remained unchanged at 22.4 billion yuan. The current stock price corresponds to the 2024/2025 price-earnings ratio of 14.8x/12.7x. Maintaining an industry rating and a target price of 80.00 yuan, corresponding to 18.1 times the price-earnings ratio of 2024 and 15.5 times the price-earnings ratio of 2025, there is 22.6% upside compared to the current stock price.
risks
Material prices and shipping costs have risen; exchange rates have fluctuated; gross margin has fallen short of expectations; competition has intensified.