Results for 2023 and 1Q24 both fell short of our expectations
The company's revenue in 2023 was 1,060 million yuan, up 40.4%. Net profit due to mother was 117 million yuan, a decrease of 23.9%, after deducting non-net profit of 114 million yuan, and a decrease of 22.3%. The company also announced 1Q24 results, with revenue of 269 million yuan, a year-on-year increase of 16.1%, a decrease of 10.9%, and net profit of 0.27 million yuan, a decrease of 17.3%, a decrease of 14.7%, after deducting non-net profit of 0.26 million yuan, a decrease of 19.4% and a decrease of 54.9%.
Affected by fluctuations in the downstream energy storage boom, terminal price cuts, and high expenses brought about by business expansion, the company's apparent performance in 2023 and 1Q24 fell short of our expectations.
Development trends
The apparent results for 2023 and 1Q24 continued to be hampered by incentive fees and high expenses. We estimate that the company's total equity incentive plus tax credit for 2023 is about 85 million yuan, with operating deductions of about 200 million yuan after the return, an increase of nearly 30% over the previous year; the 1Q24 company's apparent profit continues to be affected by equity incentives and taxes. We estimate that 1Q24 equity incentives and taxes are about 2200-23 million yuan, and after adding back the operating deduction is about 49 million yuan, a decrease of 3.5% on a comparable scale. In addition, the company has entered a stage of rapid expansion since 2023, with an increase in sales staff size and R&D investment, leading to a significant increase in expenses. Expenses increased by 59.5%/38.3% year-on-year after excluding equity incentives in 2023/1Q24, all higher than revenue growth, further hampering the apparent performance.
The industry's off-season plus downstream price cuts affected 1Q24 revenue growth and gross margin performance in the short term. The company's revenue growth rate in 2023 was 40.4%, and the gross profit margin was 40.9%, in line with expectations; 1Q24 was affected by the Spring Festival holiday and rapid price drop of lithium carbonate. Demand for downstream new energy vehicles and energy storage was weak, compounded by annual declines. The company's revenue growth slowed, and 1Q24 revenue also increased 16.1%. The overall gross margin was affected by downstream price cuts and low 1Q utilization rate, which dropped by 2.9 ppt per annum to 38.0%.
The revenue growth of incentive fuses is high, and it is expected that 2024 will be rapidly released. The company encouraged fuse revenue of 47 million yuan in 2023, an increase of 213.9%, mainly benefiting mass production of some 400V model customers; while the main increase in motivating fuses comes from high voltage fast charging. We are optimistic that the volume of domestic high voltage fast charging models in 2024 will drive the company to maintain a high level of incentive fuse revenue growth, and the revenue for 24 years is expected to exceed 100 million yuan.
Currently, the domestic incentive fuse pattern is excellent, and the company occupies the main share of the non-Tesla market. Prices are stable in the short term, and gross margin is high, which is expected to hedge against the negative impact of price cuts on some traditional power fuses.
Profit forecasting and valuation
Considering the reduction in terminal prices and short-term rates that may still be high, we lowered the company's 2024 profit forecast by 39% to 172 million yuan and introduced a profit forecast of 279 million yuan for 2025; at the same time, we are optimistic that the company's release of overseas orders and the release of scale effects in 2025 will accelerate the improvement in apparent profit and give a certain valuation premium. We have lowered our target price by 25% to 105 yuan. The current stock price corresponds to 2024/2025 33.1x/20.4x P/E. The target price corresponds to 2024/2025 40.5x/ 24.9x P/E, with 22.3% upside, maintaining an outperforming industry rating.
risks
China's demand for new energy vehicles fell short of expectations, global demand for energy storage fell short of expectations, market competition intensified, and prices of commodities such as copper/aluminum fluctuated.