Product structure upgrade & channel cultivation continue, development can be expected in 2024, maintaining a “buy” rating
In 2024Q1, the company achieved operating income of 4.95 billion yuan (-9.0% YoY, same below), net profit to mother of 480 million yuan (+1.2%), deducted non-net profit of 450 million yuan (-3.9%), and non-recurring profit and loss mainly included $33 million in government subsidies (+133.6%). The company's 2024Q1 revenue was under pressure due to a high base, and profit performance was stable under product structure upgrades.
Considering that there is still uncertainty about industry growth, we maintain our 2024 profit forecast and lower our 2025-2026 profit forecast. We expect the company's net profit to be 22.78/27.63/3.80 billion yuan in 2024-2026 (original value of 33.60/3.50 billion yuan in 2025-2026), corresponding EPS is 2.64/3.21/3.92 yuan, and the current stock price corresponding PE is 13.0/10.8/8.8 times. We are optimistic that the company's upward shift in the main price band will drive performance growth and maintain “buy” “Enter” rating.
Bicycle split: The product structure continues to be optimized, and bicycle profit is clearly in line with expectations. The company's 2024Q1 bicycle volume and price performance is in line with expectations. Sales volume declined year-on-year due to many force majeure factors, and product structure improvements led to an increase in bicycle ASP and profit. In terms of sales, we expect 2024Q1's product sales to drop 11% year on year. The main reason for the decline in sales volume (1) The main reason for the decline in sales during the same period (2023Q1's sales volume increased by about 15%); (2) The freezing rain in February affected the delivery of some production bases and some orders in April in March Delivery confirmation at the beginning of the month Revenue; (3) The industry as a whole was affected by extensive special rectification and spot checks on electric two-wheelers, and sales have slowed down. In terms of bicycle ASP and bicycle profit, we expect the company's bicycle ASP to increase 2% year on year, bike profit (calculated from net profit to mother) is expected to increase by about 14% year on year. The company's product structure adjustments are smooth, the continued popularity of high-margin new products (Looking Up, Luna) drives bicycle ASP and profit increases, and the company's internal cost reduction and cost control results are prominent. Under the combined influence, the company's 2024Q1 bicycle profit will increase significantly higher than bicycle ASP.
Profitability: Significant increase in gross margin, stable cost-side control, the company's overall gross margin in 2024Q1 was 18.0% (+2.2pct), the period expense ratio was 7.0% (+2.0pct), and the sales/management/ R&D/finance expense ratios were 3.6%/2.5%/-1.7%, respectively, +1.0/+0.5/+0.3/+0.2pct, respectively. Under the combined influence, the company's net sales margin was 9.9% (+1.0pct) in 2024Q1.
The company's gross and net interest rates have increased significantly. It is expected that with stable main system fee control, the share of high-margin high-end new products will increase, and the continuous improvement of the product structure will drive bicycle profits upward.
Company outlook: 2024Q2 or a channel of sharp rise in volume prices. In the short term, the fundamental inflection point is clear at a low base. In the short term, we expect 2024Q2 to be a channel where the company's products will rise sharply, and the fundamental inflection point will be clear under the low base. Quantitatively, the catalyst for the trade-in policy and the continued implementation of the new national standard are expected to release industry growth. Combined with the company's low sales base during the same period in 2023 (2023Q2's sales volume increased by about 0.8%), we are optimistic that the company's 2024Q2 sales growth rate is impressive. In terms of price, the company's new high-margin high-end models are looking up, Luna continues to be popular, and the 2024Q2 mid-range and high-end new products will continue to be promoted to create high-margin products, Fun Eggs and Fun Eggs. We expect that the share of new high-margin product sales will continue to increase year-on-year, and the company's bicycle ASP and bicycle profits are still in the upward channel. Looking at the full year of 2024, management confidence surpassed the industry. As the industry's leading product R&D, design and channel competition barriers, we are optimistic that it will benefit excessively from industry beta improvements and successfully complete the equity incentive targets set at the beginning of the year.
Risk warning: Industry sales fell short of expectations, industry competition worsened, and the company's product adjustments fell short of expectations.