1Q24 results are in line with our expectations
The company announced 1Q24 results: revenue -21.7%/-6.6% YoY to 5.15 billion yuan, net profit to mother -44.8%/+48.5% YoY to 260 million yuan, minus non-net profit of -45.2%/+75.4% YoY to 260 million yuan, in line with our expectations.
Development trends
1Q24 North American business was under pressure, and domestic business picked up. According to MarkLines data, the US heavy truck industry's sales volume in 1Q24 was -13.9%/-9.6% YoY to 55,900 units; China Automobile Association data showed that in 1Q24, China's heavy truck industry sales volume was +12.9%/+33.3% YoY to 272,000 vehicles. We believe that due to the decline in demand in the US heavy truck and semi-trailer industry, the company's bicycle revenue and profits in the North American business are under pressure; sales in the domestic heavy truck and semi-trailer industry are recovering. At the same time, the company's domestic reforms of the “Starlink Plan” and “Strong Crown Growth Plan” are progressing in an orderly manner, driving the recovery of domestic business. In addition, the company's 1Q24 emerging market business grew, and the European business was still resilient. The quarterly report showed that Starlink Lighthouse Pioneer Group vigorously developed the “Belt and Road” market and strengthened overseas order delivery; the European business optimized manufacturing and supply chain management against the backdrop of slowing market demand, and gross margin increased year-on-year. The company's 1Q24 global vehicle sales volume was -19%/+28% to 29,500 units, bicycle revenue -3%/-27% YoY to 175,000 yuan, and bicycle net profit -32%/+37% YoY to 8,901 yuan.
Looking ahead, the company continues to promote new energy and is awaiting the results of domestic and foreign reforms. In 2023, the company promoted new energy products such as electric muck truck mounts, electric wide-body mining vehicles, and electric gravel carriers, which have formed mass sales and application; at the same time, Qiangguan Business Group initiated integrated pre-research and product development for new energy head trailers. The new energy mixing semi-trailer products went offline in November 2023. At the end of March 2024, Zhongji Qiangguan delivered the first batch of new energy “head tank integrated” engineering vehicle products to Conch Cement. We expect the commercial application of the company's new energy business to develop further in 2024, leading to valuation catalyst. On April 29, 2024, the company issued an announcement to receive the US Customs CBP investigation results on the US EAPA. CBP determined that CIMC's subsidiary CIE did not evade US anti-dumping duties and countervailing duties. We believe that the pace of semi-trailer deliveries for the company's North American business is expected to return to normal. Looking ahead, structural reforms of the company's domestic production organization, such as the “Starlink Plan” and “Strong Crown Growth Plan”, and the North American “Deep Space Exploration Plan”, are still progressing steadily, which is expected to increase the company's domestic and foreign market share, production and operation efficiency, and profitability.
Profit forecasting and valuation
Considering that domestic and foreign reforms are still ongoing, we lowered our 2024/2025 profit forecast by 9.7%/16.3% to 1,45/1.63 billion yuan. Maintain an outperforming industry rating. The current A/H share price is 14.3/9.2 times 2024 P/E, respectively. Due to the upward shift in the valuation center of the heavy truck sector, the target price for A-shares remained unchanged at $12.02, corresponding to 16.7 times the 2024 P/E, with 16.8% upward space compared to the present; we kept the target price of HK$7.5 unchanged, which corresponds to 9.3 times the 2024 P/E, with 1.1% upward space compared to the current one.
risks
Domestic reforms fell short of expectations, demand for overseas semi-trailers fell short of expectations, and there was a risk of international trade friction.