Description of the event

In 2023, Yihuatong achieved revenue of 801 million yuan, an increase of 8.48% over the previous year; net profit to mother was 243 million yuan, compared to -166 million yuan in the same period last year. 2024Q1 achieved revenue of 13 million yuan, a year-on-year decrease of 72.83%; net profit to mother was -91 million yuan, compared to -39 million yuan in the same period last year, and losses increased.

Incident comments

The product is still in a period of rapid iteration, and the decline in unit prices is dragging down the increase in revenue.

In 2023, the total sales power of the company's fuel cell systems was 189.4 MW, up 17.3% year on year (according to Shanghai Insurance data, the company's market share ratio was 23.2%). The reasons for the slightly lower growth rate are: 1) the fuel cell vehicle industry is still immature, more dependent on government funding incentives, and the local government's fiscal expenditure pressure is high, which affects the promotion progress to a certain extent; 2) there was a lot of demand for application scenarios due to the 2022 Beijing Winter Olympics. The growth in the Beijing market was weak in 2023.

There is a big gap between the company's revenue growth rate and sales power growth rate. Due to the rapid iteration period of fuel cell systems, product prices have dropped a lot; in addition, major automakers and system manufacturers continue to increase resource investment, and market competition has intensified.

The average price of fuel cell systems in 2023 was 3,782 yuan/kW, and the average sales price for the full year of 2022 was 4,238 yuan/kW, a decrease of 10.8% per unit price (the cost of raw materials decreased by only 5.9%). As the price of fuel cell systems falls, their application scenarios such as buses and commercial vehicles may usher in a turning point. 2024Q1's poor revenue performance was mainly due to the industry in the early stages of industrialization, Q1 being a low season for the industry, and large quarterly fluctuations.

Gross margin declined. In 2023, the company's comprehensive gross margin was 32.53%, down 5.87pct year on year; of these, the fuel cell system gross margin was 34.6%, down 5.46pct year on year. The 2022H2 fuel cell system phase II project was put into operation, and the capacity utilization rate in 2023 was only 16.3%, leading to an increase in unit depreciation costs. As the scale effect unlocks, the company's gross margin has room to be repaired.

Higher R&D cost rates and depreciation are still dragging down profits. In 2023, the company's R&D expenditure rate was 17.6%, up 3.88pct year-on-year, mainly due to the company's high R&D investment in the early stages of industry promotion (R&D personnel increased 9.1% to 346 people); asset impairment losses of 63 million yuan in 2023 and credit impairment losses of 99 million yuan, mainly due to partial inventory depreciation and increased impairment accrual ratio of accounts receivable based on prudential considerations (the balance of accounts receivable was 1,591 million yuan as of the end of Q1).

The first year of the national supplement was distributed in the model urban agglomeration, and the company's cash flow is expected to improve. It is estimated that by the end of 2023, the amount of state subsidies the company should receive was 1,027 billion yuan. The model urban agglomeration was delayed in payment in lieu of grants, resulting in a revenue ratio of only 27.7% for the company in 2023. As of April 2024, some of the five major model urban agglomerations had announced a total of 772 million yuan in incentive funds for the first year; of these, the amount publicized for the Beijing-Tianjin-Hebei and Hebei model urban agglomerations, which are the company's key layout, was 3.50 and 146 million yuan respectively. It is expected that the company's cash flow will improve after the national subsidy funds are distributed to vehicle customers in 2024.

It is expected that the promotion of fuel cell vehicles will continue to accelerate in volume. In 2024, the five major model cities will enter the third year of demonstration promotion. It is expected that markets such as Guangdong, where promotion is relatively slow, will speed up their expansion, and promotion volume in Beijing is expected to maintain a high level of growth. Looking ahead, we believe that the company will still benefit from the high growth in the fuel cell industry: 1) the share of truck insurance in fuel cell vehicles reached 79.1% in 2023 (71.7% in 2022), which means that the economy is gradually being accepted by the market; 2) the installed power of bicycles continues to increase, and product performance continues to improve. In addition, the company set up a subsidiary in Guangdong to explore the Guangdong model urban agglomeration market.

The company's revenue for 2024-2025 is expected to be 1.10 billion yuan and 1.72 billion yuan, respectively, maintaining a “buy” rating.

Risk warning

1. Product iteration risk due to technological upgrades; 2. Risk of inventory impairment and bad accounts receivable.