Matters:
The company released financial reports. Net profit for the full year of 2023 was 180 million yuan/ -14%, of which net profit to mother was 32 million yuan/ -29% in 4Q23, and net profit to mother was 80 million yuan/ +84% in 1Q24.
Commentary:
4Q23-1Q24's operating performance exceeded expectations.
4Q23: Revenue of 680 million yuan, +53% YoY, +20% month-on-month, and the performance exceeded expectations; the growth rate was lower than the revenue mainly because investment income was dragged down by losses of the participating company Aerospace Shenkun. The current period was -49 million yuan, with excellent profit margin data after exclusion; gross profit margin of 32.8%, +1.0PP year over year, and +3.1 PP compared to month. It is estimated that the differential business and military business have clearly boosted gross margin.
1Q24: Revenue of 550 million yuan, +44% year over year, and -11% month-on-month. It is estimated that the differential business and export volume continued for 4Q; net profit to mother of 80 million yuan, +84% year over year, and +1.5 times month-on-month. The profit performance exceeded expectations mainly due to differential and export boosts. It is expected to continue to increase on this basis throughout the year. Specifically, gross profit margin of 36.0%, year-on-year +4.1PP, and month-on-month +3.2PP.
The development of new products is progressing steadily, and the new growth line is expected to be relaunched:
1. Differential gears are expected to release profits this year: in recent years, the company has leveraged the entire differential industry chain layout. Luzhou Haoneng (including differentials and others), which specializes in differentials, had revenue of 410 million yuan and net profit of -0.3 billion yuan in 2023. The increase is expected to reach more than 200 million yuan this year. Profits have changed from loss to profit, leading to a significant increase in the company's profits.
2. Target leading automotive transmission suppliers, laying out motor shafts and precision planetary reducer businesses: In addition to the differential business, the company has planned hollow motor shaft projects and reducer projects to better grasp the trends of electrification and assembly. The motor shaft project is expected to enter mass production this year (with a planned production capacity of 2 million pieces), and the relay company will continue to grow starting next year.
3. The aerospace business product line has been fully expanded: The company is currently involved in four companies, including Haoyiqiang, Hengyisheng, Haoneng Aerospace, and Aerospace Shenkun, covering the two major sectors of aviation and aerospace, as well as diversified product businesses such as aircraft sheet metal parts, aircraft machined parts, aircraft exterior modification, and rocket special valves. In 2023, Hao Yiqiang's revenue was 220 million yuan and net profit was 55 million yuan. This year, it is expected to be driven by both military and civilian growth.
Investment advice: The company has begun to enter an inflection point cycle brought about by the expansion of the differential business. The differential and military business is expected to bring good growth this year. Furthermore, the synchronizer business that the market is concerned about is expected to be driven by both exports and AMT volume and price (revenue growth was good last year and is expected to continue this year), which will enhance the company's recent operations. Based on the above analysis, we adjusted the company's 2024-2025 net profit forecast from 260 million yuan and 380 million yuan to 310 million yuan and introduced the 2026 forecast of 460 million yuan. The 2024-2026 growth rates are +69%, +22%, and +21%, corresponding to PE 13 times, 10.5 times, and 8.6 times. Combining the company's past valuation, the overall valuation level of the industry, and the further enrichment and acceleration of the company's new business development, the target PE for 2024 was given 20 times. The target price was adjusted accordingly to 15.7 yuan, with 56% space, and raised to a “strong push” rating.
Risk warning: The pace and sales volume of new products are lower than expected, exports and fuel vehicle sales are lower than expected, material price fluctuations, etc.