FY23 and 1Q24 results are in line with our expectations
The company announced FY23 and 1Q24 results: FY23 revenue of 25.987 billion yuan, +18.6% year on year; net profit to mother of 3,091 billion yuan, +132.1% year over year. Among them, 4Q23 revenue was 6.967 billion yuan, +34.4% YoY, -5.6% month-on-month; net profit to mother was 1,066 billion yuan, +299.3% YoY, +8.9%. 1Q24 achieved revenue of 7.296 billion yuan, +35.8% YoY, +4.7% month-on-month; net profit to mother was 1,034 billion yuan, +191.2% YoY and -3.1%. The results were in line with our expectations.
Development trends
Gao Gemeng went overseas to build a factory, and there is still plenty of room for long-term growth. In 2023, domestic and foreign tire demand was repaired, and the company's Vietnamese and Cambodian factories continued to utilize production capacity. The company achieved tire production of 586.354 million pieces (+35.7% YoY) and sales volume of 55.7863 million pieces (+27.1% YoY); 1Q24's production and sales continued to grow, achieving 17.2527 million tires (+3.8% QoQ) and sales volume of 16.5817 million pieces (+11.1% QoQ). The company focuses on promoting a global strategic layout. Currently, overseas projects include 12 million semi-steel tires in Cambodia, 6 million semi-steel tires in Mexico, 3.6 million radial tires in Indonesia, and 37,000 tons of off-road tires; domestic projects include Dongjiakou's project with an annual output of 30 million sets of high-performance radial tires and 150,000 tons of off-road tires; the company is expected to be put into operation one after another in 2025-2026, and there is still plenty of room for long-term growth.
Continue to enhance the company's brand power through liquid gold products and seek to break through the boundaries of domestic tires. The company's profit and cash flow scale continue to expand, which can fully support the company's investment in product-side R&D and brand power building. The company has been adhering to high-intensity research and development for a long time, while continuously increasing the promotion of liquid gold products.
In 2023, the company simultaneously promoted liquid gold products on the retail side and the supporting side. The retail side released four major series of liquid gold passenger vehicle products through stores. Light commercial vehicles and new energy heavy trucks on the supporting side all had breakthroughs with new models. We believe that the company is expected to use new liquid gold materials as a breakthrough to enhance the brand strength and product grade of tire products, and lay the foundation for the company to become at the forefront of the global tire industry in the medium to long term.
Pay attention to ESG and synchronize the development trends of European and American tire companies. The company attaches importance to sustainable development and continuously optimizes the ESG management system. In 2023, the company became the first Chinese tire company to join the United Nations Global Compact, and also took the lead in organizing carbon verification and product carbon footprint verification in the domestic tire industry.
According to the company's sustainable development goals: increase the content of sustainable materials in tire products to 40% by 2030 and 100% by 2050; by 2030, energy consumption per product will be reduced by 30% compared to 2022, and carbon emissions per product will be reduced by 30%. We believe that under the trend where overseas trade barriers continue to rise and the industry requires more green development of tire products, the company is at the forefront of the domestic tire industry.
Profit forecasting and valuation
As the company accelerates overseas project construction, we raised our 2024/25 net profit by 11.3%/1.6% to 4.180 billion yuan/4.545 billion yuan. The current stock price corresponds to 13.0 times/11.9 times the 2024/25 price-earnings ratio.
Maintaining an outperforming industry rating, the target price was raised by 29.1% to 19.1 yuan due to the upward shift in the industry valuation center, corresponding to 15.0 times/13.8 times the 2024/25 price-earnings ratio, and there is 15.8% upside compared to the current stock price.
risks
Prices of raw materials have risen; the pace of commissioning new production capacity has fallen short of expectations; barriers to overseas trade have increased.