Key points of investment
Company announcement: In 2023, revenue, net profit attributable to mother, and net profit not attributable to mother were 18.27 million yuan, 1.47 million yuan, and 115 million yuan respectively, up 59%, 94%, and 72% year-on-year respectively. Gross margin was 17.79%, down 1.13 percentage points year on year; net margin was 8.14%, up 1.85 percentage points year on year. In 2024, Q1 revenue, net profit attributable to mother, and net profit not attributable to mother were $566, 0.53 million, and 51 million yuan respectively, up 67%, 30%, and 58% year-on-year respectively. Gross margin was 18.59% and net margin was 9.39%.
Expense rates declined markedly during the period, leading to an increase in net interest rates
The total cost rate in 2023 was 9.8%, down 2 percentage points year on year. Among them, sales, management, R&D, and finance expenses were 1.04%, 3.51%, 4.06%, and 1.19%, respectively, down 0.10, 0.80, 0.47, and 0.64 percentage points year on year. The total cost rate for Q1 2024 was 8.58%, down 2.14 percentage points year over year. Revenue grew rapidly, the scale effect increased significantly, and the cost ratio during the dilution period was diluted.
EGR: The commercial vehicle market recovered, and the development of the hybrid passenger vehicle market contributed to an increase of 562 million yuan in revenue in 2023. The EGR business achieved revenue of 562 million yuan, an increase of 97% over the previous year. Among them, hybrid EGR achieved revenue of 140 million yuan, an increase of about 900% over the previous year, contributing to new volume; commercial vehicle EGR achieved revenue of 422 million yuan, an increase of 56% year on year; and total commercial vehicle sales reached 4.03 million units in 2023, an increase of 22% year on year. Thanks to the continuous development of downstream customers, the growth rate of commercial vehicle EGR is higher than that of the commercial vehicle sales industry.
Motor core: Increased sales volume from new forces and independent brand car companies drove the motor core business to grow. The motor core business achieved revenue of 705 million yuan in 2023, an increase of 76% over the previous year. Under the premise that the original foreign brand and the two major customers of United Electronics are growing steadily, we have successfully pioneered a series of direct supply customers such as Star Drive, Jinkang Power, Ferdi Power, and Bosch. End customers include Geely, Cyrus, BYD, Changan, Ideal, Xiaomi, NIO, SAIC, Chery and many other domestic independent brands.
Natural gas injection system: The economic advantages of natural gas operation are obvious, driving business growth to achieve revenue of about 96 million yuan in 2023, an increase of about 586% over the previous year, and a total of 73,900 units were shipped. Natural gas and diesel maintain a high price difference, and heavy natural gas trucks have obvious operating economy. With the penetration of heavy natural gas trucks, the company's business is expected to fully benefit.
Profit forecasting and valuation
The company's revenue for 2024-2026 is estimated to be 26.61/33.47/4,067 billion yuan, and YOY is 45.6%/25.8%/21.5%; 2024-2026 net profit to mother is expected to be 2.38/3.15/398 million yuan, YOY is 61.9%/32.6%/26.2%, EPS is 1.03/1.36/1.72 yuan/share, corresponding PE is 15.84/11.95/9.47 times. Maintain a “buy” rating.
Risk warning
Raw material costs have risen; the penetration rate of new energy vehicles has fallen short of expectations; gross margin is under pressure due to increased competition among automakers; heavy gas truck penetration falls short of expectations; market development falls short of expectations, etc.