Incident: The company released its report for the first quarter of 2024. 2024Q1 achieved revenue of 963 million yuan, -2.27%, and -9.13% month-on-month; net profit to mother of 93 million yuan, -11.80% year-on-year, +15.70% month-on-month; deducted non-net profit of 94 million yuan, -5.09% year-on-year, and +23.33% month-on-month.

Revenue: The year-on-month decline in revenue is due to poor domestic sales. According to Shanghai Insurance data, the number of heavy trucks covered in 24Q1 was about 135,500 vehicles, -17.1% year-on-year and -3.5% month-on-month.

Profit: Profitability increased month-on-month, resulting in a decrease in the cost rate. 24Q1's gross margin was 24.34%, +0.22pct year on year, +1.89pct month on month; net margin was 9.57%, -1.04pct year on year, +2.06pct month on month. Profitability increased significantly month-on-month, mainly due to the month-on-month decline in the company's expense ratio. 2024Q1 sales/management/R&D/finance expenses rates were 1.26%/6.36%/-0.52%, respectively, +0.32pct/+1.26pct/0.27pct/-0.82pct, and -0.91pct/-0.90pct/-2.30pct/+0.03pct month-on-month.

The 24-year plan is to add 6 new production lines, which is expected to increase revenue. In 2024, the company plans to add 3 large crankshaft processing lines and add 3 connecting rod forging lines at the Weifang subsidiary, which is expected to increase revenue.

The steady development of air suspensions is expected to create a second growth curve. In 2023, the company sold about 600,000 air suspensions, an increase of 25.62% over the previous year, mainly due to the recovery in industry sales. Referring to Europe and America, heavy truck air suspensions are the general trend. The company's air suspension business is progressing smoothly. Major customers include Sinotruk, FAW Jiefang, Dongfeng Huashen, Foton, Dayun Heavy Truck, Anhui Hualing, Zhonglian Heavy Industries, Anhui Liugong, Weichai New Energy, CIMC Qiangguan, Hebei Changhua, etc. As the industry expands, this business is expected to become the company's second growth curve.

The international heavy truck market has maintained a good development trend, and the company's overseas revenue is expected to continue to grow. According to customs data, the heavy truck industry exported about 280,000 vehicles in 2023, an increase of about 70% over the previous year. China's heavy truck products are strong and cost-effective, and exports are expected to continue to grow steadily in 2024. The company has many overseas customers such as Caterpillar, Daimler, Bonfiglioli, and Commell. In 2023, the company's export business achieved revenue of 78,90,800 yuan, +23.42% year-on-year. With the steady development of overseas markets, the company's overseas revenue is expected to continue to grow.

Demand to replace stock capacity may drive the recovery of the industry, and demand in the heavy truck industry is expected to continue to improve. According to the bus terminal network, China has about 8 million heavy trucks. Considering the 7-8 year renewal cycle for heavy trucks, large-scale stock capacity replacement demand is likely to become a key driving force for the recovery of the industry starting in 2023. Demand in the heavy truck industry is expected to continue to improve in the next few years. Stock capacity replacement demand is expected to become an important growth point for the company's main business in the future.

Profit forecast: Considering the slow recovery in sales in the heavy truck industry, adjust the company's net profit to mother for 24-25 to 4.7 or 5.

300 million yuan (previous values were 610,000 and 790 million yuan), adding 550 million yuan in the 2026 profit forecast. The year-on-year growth rates were 20%, 13%, and 3% in that order, corresponding to the current PE 13X, 11X, and 11X, maintaining the “buy” rating.

Risk warning: Heavy truck sales fall short of expectations; heavy truck exports fall short of expectations; suspension business expansion falls short of expectations.