Core views

The company's 2023Q4 and 2024Q1 revenue performance exceeded expectations. Mainly, traditional strong categories such as electric scooters, electric balance scooters, small-displacement all-terrain vehicles, and off-road motorcycles maintained steady growth and a steady increase in market share. At the same time, emerging categories such as electric bicycles, electric golf carts, and high-displacement all-terrain vehicles contributed significantly. Looking ahead to 2024, the company's new products will be further expanded, the sales scale and share will continue to increase, and overseas channels and production capacity will continue to expand, and the profit level is expected to remain stable.

occurrences

On April 21, 2024, Taotao Auto Industry released the 2023 Annual Report and the First Quarter 2024 Report.

In 2023, the company achieved operating income of 2.144 billion yuan (YOY +21.44%), net profit to mother of 280 million yuan (YOY +35.95%), and a net profit margin of 13.08% (YOY+1.40pct).

Among them, Q4 achieved operating income of 798 million yuan (YOY +42.10%), net profit attributable to mother of 76 million yuan (YOY +8.66%), and a net profit margin of 9.53% (YOY-2.93pct).

2024Q1 achieved operating income of 520 million yuan (YOY +49.06%), net profit to mother of 51 million yuan (YOY +45.89%), and a net profit margin of 9.79% (YOY-0.21pct).

Brief review

1. Revenue analysis: Strong traditional categories are steady, and emerging categories contribute incrementally 1) Traditional categories: Sales are growing steadily, and market share continues to rise.

① Electric scooters: Achieved revenue of 718 million yuan, an increase of 4.52% over the previous year, accounting for 33.49%. The product structure of the independent brand GOTRAX was optimized, and the newly launched high-end products sold well at the same time. At the same time, channels were continuously expanded. High-end models entered BestBuy, and the share of e-commerce and offline supermarkets increased.

② Electric scooter: Achieved revenue of 296 million yuan, an increase of 1.78% over the previous year, accounting for 13.79%. Our own brand GOTRAX products continue to be upgraded. Amazon ranked TOP3 in US sales and won the annual sales title in the Walmart category for 2 consecutive years.

③ All-terrain vehicles: Achieved revenue of 620 million yuan, an increase of 21.21% over the previous year, accounting for 28.93%.

Small-displacement all-terrain vehicles have stabilized their leading position in North America and are gradually entering high-end dealer channels in North America. According to data from the China Association of Automobile Manufacturers, the company ranked second in the number of all-terrain vehicle exports in 2023. Meanwhile, the company's Vietnam plant is expected to start production in 2024Q2.

④ Off-road motorcycles: Achieved revenue of 126 million yuan, an increase of 303.21% over the previous year, accounting for 5.72%. The multi-brand and multi-channel layout has paid off. The independent brand GOTRAX launched its own website, DENAGO plans to enter high-end dealer channels, ODM products enter TSC supermarkets, and sales have increased significantly throughout the year.

2) Emerging categories: The early layout has entered the harvest period, and the share of high growth of new products has increased rapidly.

① Electric bicycles: Achieved revenue of 164 million yuan, an increase of 111.11% over the previous year, accounting for 7.69%. The dual brand strategy continues to expand and expand products. On the basis of the commuter, folding, cruising, and snow series, the three categories of mountain, cargo, and hunting have been added to meet the individual needs of consumers, while achieving full channel coverage. DENAGO has more than 300 high-end dealers, and GOTRAX has entered channels such as Academy, Kohl's, BestBuy, and Lowe's for sales.

② Electric golf carts: achieved revenue of 78.5 million yuan, accounting for 3.66%. The company entered the field of electric golf carts through its own brand+ODM. The independent brand DENAGO has expanded more than 60 high-end dealers, and ODM products have entered more than 300 TSC supermarket stores, and is striving to expand to more than 1,000. The company will set up assembly plants in Texas, Florida, and California. Among them, the Texas and Florida plants will begin production in 2024Q1, and the California plant will be put into use within 2024, and electric golf carts are expected to maintain a high growth rate.

③ High-displacement all-terrain vehicles: The company is promoting the development of all-terrain vehicles in the direction of electrification and large displacement, and initially achieved a vertical extension of the 300CC ATV product line. In 2023, 300CC ATVs have been mass-produced and shipped. In 2024, 300 CC ATVs will focus on markets outside of North America, 500CC UTVs will enter the North American market, and high-displacement all-terrain vehicles are expected to contribute in 2024.

2024Q1 achieved revenue of 520 million yuan, an increase of 49.06% over the previous year. It is mainly due to increased contributions from emerging categories such as electric bicycles, electric golf carts, and all-terrain vehicles. It is estimated that emerging categories account for more than 30% of sales.

2. Profit analysis: New product release affects profit margin in the short term, and will remain stable in the long term 1) Gross profit margin and cost ratio: Promotion and new product release affect gross profit margin. R&D intensity increases gross profit margin. The gross margin for 2023 is 37.60% (YoY+1.85pct), of which Q4 gross margin is 31.57% (YOY-7.68pct), and 2024Q1 gross margin is 37.47% (YOY-3.88pct). The gross margin of 2023Q4 and 2024Q1 declined year-on-year. The main reason was that the company increased its discount promotion efforts, while the share of sales of products with low gross margins currently such as electric golf carts and all-terrain vehicles increased.

In terms of expenses, the cost ratio decreased by 0.24 pct year on year in 2023, and the sales/management/R&D/finance expense ratios were +0.30/+0.29/-0.44/ -1.28 pct year on year; of these, the cost ratio for the Q4 period decreased by 7.06 pct year on year, and the sales/management/R&D/finance expense ratio was -5.63/-0.68/+0.27/ -1.02 pct year on year, respectively; the cost ratio for the 2024Q1 period decreased by 5.92 pct year on year, and the sales/management/R&D/finance expense ratio was -0.37/+, respectively 0.20/+2.18/-7.93pct Main factors: 1) The company reduced promotional activities and cost investment; 2) the company increased its product development intensity, accelerated the launch of new products, and increased the overall R&D cost rate; 3) the year-on-year increase in exchange income and interest income.

Looking ahead to 2024, with the gradual release of the company's production capacity and the scale effect, the company's gross margin is expected to continue to increase; at the same time, the company's cost ratio may increase as investment in independent brand building, channel expansion, and new product R&D increases.

2) Net interest rate: Net interest rate declined slightly in the short term, and is expected to remain stable in the long term. The net interest rate in 2023 is 13.08% (YOY+1.40pct), of which the Q4 net interest rate is 9.53% (YOY-2.93pct), and the 2024Q1 net interest rate is 9.79% (YOY-0.21pct). Based on the outlook for gross margin and expense ratio, the company's net interest rate level will remain stable.

Investment advice: The smart mobility industry is on the fast track of growth. The company's traditional categories have obvious cost performance advantages, the North American market takes the lead, and proposes the development direction of large displacement+high-end +intelligence+oil to electricity to open up new categories and new growth curves, and the revenue scale is expected to double. The company is expected to achieve net profit of 3.87/4.73/562 billion yuan in 2024-2026, EPS of 3.54/4.33/5.14 yuan, and the current stock price corresponding to PE is 20.36/16.66/14.02 times, maintaining a “buy” rating.