1Q24 results are in line with our expectations
1Q24 revenue +103.4%/+14.0% YoY to $570 million, net profit to mother +187.1%/+16.3% YoY to RMB 32.05 million, net profit +166.4%/-0.1% YoY after deducting non-net profit +166.4%/-0.1% YoY to RMB 27.46 million. It met our expectations.
Development trends
The seat frame business is growing steadily, and gross profit is expected to continue to be pressured by the upward trend of the new business. The company's revenue grew sequentially for 5 consecutive quarters, and reached a record high in 1Q24. We believe the main benefit was: 1) The company is the core supplier of seat frames. 1Q24 Celis sold 84,000 units in wholesale sales, +611% year-on-year, and +26% month-on-month, topping the sales list of new forces. The volume of core customers led to a high increase in revenue. 2) Increased contribution from the new container business. In terms of profit, gross margin fell 3.4 ppt from 4Q23, mainly due to relative pressure on the profitability of the container business in the early stages of climbing the slope. Looking ahead, we expect Cyrus's strong model cycle and the expansion of BYD's multiple projects, and the company's profit side is expected to continue to grow.
In the short to medium term, the new business of special railway containers and high-speed rail seats expanded smoothly, contributing to incremental performance flexibility.
Relying on technical foundations such as stamping, welding, assembly, and mold design, the company successfully expanded the new container and high-speed rail seat business. In 2022, the company bid for Golden Eagle Heavy Industries' special railway container business, winning the bid amount of 587 million yuan. According to the annual report, the project was mass-produced in October 2023, and production has already been stabilized at the end of 2023. We believe it is expected that steady growth and profitability will increase steadily in the future. According to the annual report, the company has also obtained a series of supply qualification certificates for high-speed rail chair products. It is currently in the R&D and testing phase, and we look forward to further increasing contributions to new targeted landings.
In the long run, upgrading from seat frame tier 2 to overall chair tier 1 will achieve industrial upgrading. The competitive pattern of the seat industry is good, and the domestic market is dominated by foreign/joint venture suppliers; at the same time, consumption upgrades have led to the continuous expansion of the industry.
We believe that the rise of independent brands is expected to reshape supporting relationships, and the trend of domestic substitution will accelerate. The seat frame is one of the core components of car seats. The company is an independent domestic framework leader. We are optimistic that the company will rely on R&D, design and manufacturing experience in the frame business, customer relationships, and foam/mask production experience accumulated in high-speed rail overall chair projects to gradually enter the full chair circuit to upgrade the value of bicycles from 2,000 yuan to 5,000 yuan+. At the same time, chair assembly is asset-light compared to traditional frame casting, and entering the whole chair business is expected to improve the company's input-output ratio and achieve industrial upgrading.
Profit forecasting and valuation
We maintain our 2024 and 2025 net profit forecasts of $215 million and $278 million, respectively. The current stock price corresponds to 2024/2025 price-earnings ratio 17.1/13.2 times. Maintaining an industry rating and target price of 70 yuan, corresponding to the 2024/2025 price-earnings ratio of 26.1/20.1 times, there is 52.2% upside compared to the current stock price.
risks
Production capacity construction falls short of expectations: the company's order acquisition falls short of expectations; downstream customer concentration risks.