Incident: The company released its annual report and quarterly report. In 2023, the company achieved revenue of 801 million yuan, YOY +8.5%; net profit to mother - 243 million yuan, an increase of 77 million yuan over the previous year. 2023Q4 achieved revenue of 507 million yuan, YOY +46.0%, +262.8% month-on-month; realized net profit to mother of -50 million yuan, a year-on-year loss of 122 million yuan, and a month-on-month loss of 66 million yuan. The company's annual fuel cell system sales total power of 189.4 MW, YOY +17.3%. 2024Q1 achieved revenue of 13 million yuan, YOY -72.8%, or -97.4% month-on-month; realized net profit to mother of -91 million yuan, an increase of 53 million yuan, a year-on-year increase of 0.53 million yuan, and a month-on-month increase of 41 million yuan.

Comment:

Revenue fluctuates seasonally, and the growth trend remains constant throughout the year. Currently, domestic fuel cell vehicle production and sales are seasonal. Automobile manufacturers usually select the required product models after reviewing government subsidy policies and market demand at the beginning of the year to ensure that the fuel cell vehicles produced meet the subsidy conditions and market demand. The company's order confirmation and production arrangements are also based on this practice. The company achieved revenue of 507 million yuan in 2023Q4, accounting for 63.3% of the whole year. 2024Q1 revenue was low, and the cost side was relatively stable from season to season. Combined financial expenses increased by 21 million yuan year on year, and 2024Q1 loss increased year on year.

According to public data from the Orange Association Research Institute, according to Shanghai Insurance statistics, the cumulative sales volume of fuel cell vehicles in China as of the end of 2023 is 21,150 units, which is still a big gap from the target of 50,000 vehicles in 2025. We believe that the company and industry are expected to maintain rapid growth in the next two years.

2023Q4 expenses are well controlled, and the company's profit potential is gradually showing. The company's expenses for the 2023Q1-4 period were 0.74/1.08/1.38/105 million yuan, respectively. The company's 2023Q4 gross profit margin was 29.4%, and the period expense ratio was 20.7%, indicating that the company could achieve good profits under 2023Q4 revenue volume (507 million yuan), and 2023Q4 paid 2020 million yuan in income tax. We are optimistic that fuel cell systems will accelerate deployment driven by policy and economy, and the company is expected to achieve profits in the future.

The price reduction rate of the company's fuel cell system slowed in 2023, and asset impairment was manageable. The company sold 1,900 fuel cell systems in 2023, YOY+ 23.62%; the average power of a single system was 100 kW, a decrease of 5.1%; the unit price of the fuel cell system was 0.38 million yuan/kW, YOY -10.8%; asset impairment was 63 million yuan, a year-on-year decrease of 27 million yuan.

Investment advice: We are optimistic about the company's long-term growth potential. We expect the company's net profit to be -1.60/-0.57/0.11 billion yuan in 2024-2026, and EPS of -0.97/-0.34/0.06 yuan, respectively. Maintain a “buy” rating.

Risk warning: Risk of industry promotion falling short of expectations, risk of bad debts in accounts receivable, risk of performance forecasts and valuation judgments falling short of expectations.