The 2023 results fell short of our expectations, and the 1Q24 results were in line with our expectations. The company announced 2023 and 1Q24 results: 2023 revenue/net profit/net profit deducted from non-net profit of 155.67/5.30/ 477 million yuan, +3.8%/-33.7%/-35.8% year-on-year. 1Q24 revenue/net profit/net profit deducted from non-net profit of 37.41/2.23/ 198 million yuan, -2.5%/-13.6%/-9.6% YoY, +19.0% month-on-month/reversal of loss to profit/loss to profit. The company's 2023 performance fell short of our expectations, mainly due to long-term equity impairment and performance compensation for Hongxiang Co., Ltd., which dragged down profits; the 1Q24 results met our expectations.
Development trends
Industrial motors are growing steadily, and they are optimistic that large-scale equipment renewal policies will drive growth. The company's industrial motor business generated revenue of 9.645 billion yuan in 23 years, +10% year-on-year. We believe it mainly benefited from the high infrastructure boom in the North American market. On the profit side, industrial motors had a gross profit margin of 29.6% in 23 years, +1.5ppt year over year. We believe they have benefited from the reduction in raw material prices and the optimization of the revenue structure. In 1Q24, we estimate the year-on-year decline in industrial motor revenue, mainly due to the fact that 4Q23 order revenue was basically confirmed in the current period, while 4Q23 industrial investment boom in China and Europe was poor, and the company's order volume was relatively small. Looking ahead, we believe that domestic downstream demand for industrial motors is expected to pick up in 2Q24, and the company's 3M24 orders will improve. At the same time, we are optimistic that the equipment renewal policy will drive the company's demand for industrial motors. Downstream industrial motors are mainly in the steel, petrochemical and other industries. For this equipment update, we recommend paying attention to the implementation of subsequent central financial subsidies.
New energy vehicle motor revenue remained flat year on year, and the downstream micromotor has entered the inventory replenishment stage. The company's NEV motor business had 23 million yuan in revenue, which was basically the same year on year, with a gross profit margin of 16.22% and -0.37ppt year over year. We believe that it is mainly affected by poor sales of downstream Mercedes-Benz pure electric models and commercial vehicles. On the profit side, we expect that 2Q24's NEV motor business will benefit from a recovery in downstream commercial vehicle demand and the release of new passenger vehicle orders. The company's 23-year revenue was 3.111 billion yuan, down 4.0%, mainly affected by the 1H23 home appliance industry chain removal, but starting with 3Q23, the storage was nearing its end, and the industrial chain entered the inventory replenishment stage. We estimate that 3-4Q23 revenue increased month-on-month, with gross margin benefiting from a slight increase of 0.55ppt to 16.6% from the price reduction of raw materials; looking ahead, we believe 2Q24 Micromotor is expected to benefit from the peak season for downstream home appliances and maintain growth with the trade-in policy.
Investment impairment and compensation for Hongxiang shares dragged down profits. The company accrued long-term equity investment impairment preparations of RMB 211 million and performance compensation of RMB 186 million. The former was due to the decline in the market value of Hongxiang shares and the depreciation of the shares held by the company; the latter compensated Hongxiang shares due to Yinchuan transformer's failure to complete performance betting and the company compensated Hongxiang shares; overall, the total impact of Hongxiang shares on the company's apparent profit in '23 was 397 million yuan. We estimate that after excluding the impact of Hongxiang shares, the company's net profit for 23 was 927 million yuan, an increase of 16% over the previous year.
Profit forecasting and valuation
Due to the loss reduction in the NEV motor business falling short of expectations, we lowered the company's 2024/2025 profit forecast of 15.5%/12.9% to 11.63/1,399 billion yuan. Considering that large-scale equipment updates and trade-in policies are expected to catalyze a recovery in the industry's valuation center, maintain a target price of 18.0 yuan and outperform the industry rating, the current stock price corresponds to 17.1x/14.2x P/E in 2024/2025, and the target price corresponds to 20.2x/16.8x P/E, with 18.7% upside.
risks
Sales of new energy vehicles fell short of expectations, macroeconomic recovery fell short of expectations, and commodity prices fluctuated greatly.