Results for 2023 and 1Q24 fell short of our expectations
The company announced its 2023 annual report: full year revenue of 3.69 billion yuan, +6.0% year on year; net profit to mother - 200 million yuan, -237.5% year over year; deducted non-net profit - 230 million yuan, -328.4% year on year. Corresponding to 4Q23, we achieved revenue of 1.35 billion yuan, +2.3%/+56.3% month-on-month, net profit of -116 million yuan, or -7.86 million yuan month-on-month loss; deducted non-net profit of -125 million yuan, -360.3% year-on-year, with a month-on-month loss of 7.17 million yuan. The company announced its 1Q24 quarterly report: achieved revenue of 850 million yuan, +26.9%/-37.1% month-on-month; net profit to mother of 25.64 million yuan, +17.1% year-on-year, reversing losses month-on-month; deducted non-net profit of 13.72 million yuan, -22.8% year-on-year and month-on-month reverse loss. The 2023 and 1Q24 results fell short of our expectations, mainly due to multiple factors such as significant asset impairment and pressure on the motor electronic control business sector.
Development trends
Intelligent equipment is growing steadily, and the motor electronic control business falls short of expectations. The revenue of the smart equipment/electronic control parts business in 2023 was 2,94/690 million yuan, +22.6%/-16.2% year-on-year. Increased delivery of large orders supported the growth of the intelligent equipment business. Increased industry competition intensified, and delivery fell short of expectations, putting pressure on the telephone control business.
The customer structure is improving. In 2023, NIOLAI/Ideal ranked among the top two customers, accounting for 13.2%/9.4% of revenue.
1Q24 revenue was +26.9% year-on-year, and the intelligent equipment/motor electronic control parts business all achieved good growth.
Profitability in 2023 was under pressure due to multiple factors, and there was an improvement in 1Q24. In 2023, the company's gross profit margin was 12.0%, year-on-year - 5.8ppt; by business, the gross profit margin of intelligent equipment was 14.1%, the year-on-year -6.3ppt, mainly due to insufficient refined control, a sharp increase in labor costs and manufacturing costs, and the delivery of some low-margin projects; the gross profit margin of the motor electronic control business was 2.1%, -7.6ppt year on year, mainly due to sales falling short of expectations from major customers and high depreciation pressure on new plants. On the cost side, the management cost ratio was +1.4ppt compared to the same period, mainly due to digital strategic investment expenses and the introduction of middle and high-end management and technical personnel. In addition, the 2023 inventory price drop loss and contract performance cost impairment loss of 210 million yuan offset the income of JAC and other investments of 32.14 million yuan. 1Q24 gross margin/net profit margin was 14.2%/3.0%, +5.0/+11.7ppt month-on-month, and profitability improved.
The electric drive business is expected to reverse losses, become a new growth point overseas, and explore the third growth line. Looking ahead, as of 3Q23, the company's smart equipment orders have exceeded 5.8 billion yuan, supporting the steady growth of the intelligent equipment business; mass production of new projects such as Ideal and Chery is expected to reduce losses in the electric drive business. Furthermore, in 2023, domestic/overseas revenue was 31.9/4.4 billion yuan, +5.1/ +134.6% year on year. The company continued to receive orders from international NEV companies, and the customer structure was continuously optimized; we are optimistic that the company will explore the European, American and Southeast Asian markets, bringing in additional performance.
Furthermore, the company continues to explore new businesses and explore the application of electric motor control in low-altitude economy, commercial vehicles, etc.
Profit forecasting and valuation
As the motor electronic control business fell short of expectations, we lowered our 2024 profit forecast by 71.7% to 130 million yuan, and introduced a profit forecast of 200 million yuan for 2025. The current stock price corresponds to 24/25 24.9/16.5xp/E. Maintaining an outperforming industry rating, considering that profits still have room to be repaired, the target price was lowered by 50% to 28.5 yuan, corresponding to 30.0/19.8x P/E in 24/25, with 19.9% upside compared to the current stock price.
risks
The automobile market is declining, industry competition is intensifying, there is a risk of bad debts in accounts receivable, and the risk of international trade friction.