Description of the event
Yutong Heavy Industries achieved operating income of 702 million yuan in Q1 2024, an increase of 11.82% year on year, net profit to mother of 0.32 million yuan, up 8.29% year on year, and net profit after deducting non-return to mother of 0.26 million yuan, an increase of 4.12% year on year.
Incident comments
The industry is bottoming out, and the cost reduction of new energy equipment has led to a gradual increase in economy. Since 2023, sanitation equipment has been affected by financial pressure from local governments, and procurement demand continues to be sluggish. In 2023, sales of sanitation equipment across the industry fell 6.1%, but the industry's accumulated replacement demand will gradually be released. Currently, the sanitation equipment industry is bottoming out. In the future, as the economy improves, sanitation equipment sales are expected to achieve positive growth. Furthermore, since battery costs have declined rapidly in the past two years, some new energy sanitation equipment can already be evaluated throughout the life cycle, thereby boosting sales of new energy equipment. It is estimated that Q1's revenue growth is mainly due to a recovery in sales of new energy sanitation equipment.
Competition in the industry has intensified, and comprehensive gross margin has declined. The company's comprehensive gross margin increased by 2.26pct to 26.19% in 2024Q1. It is estimated that this is due to the increase in the company's share of new energy products and the voluntary abandonment of some orders with poor repayment conditions and low gross margin. The cost rate decreased during the period, reducing costs and increasing efficiency. The 2024Q1 company's expense ratio during the period was 14.63%, down 2.10pct year on year. Looking at the spin-off, it was mainly due to a decrease in the sales expense ratio and management expense ratio. The Q1 company's sales expense ratio decreased by 1.38 pct to 8.31%, and the management expense ratio (including R&D expenses) decreased by 1.92 pct to 7.46%, which is presumed to be related to the reduction in equity incentive expenses. Cash flow continued to improve year on year. The company's 2024Q1 revenue ratio was 91.62%. Despite a year-on-year decrease of 37.12pct, it is still in a relatively healthy state.
Impairment is dragging down performance improvement. Based on the principle of prudence, the company calculated impairment provisions for assets that may show signs of impairment as of the end of the 2024Q1 consolidated statement, totaling 46 million yuan, including asset impairment losses of 18.14 million yuan (loss of 50,000 yuan in the same period last year) and credit impairment losses of 27.73 million yuan (920,000 yuan in the same period last year), which affected profit of 44.9 million yuan in total.
Long-term optimism about the company's competitive advantage will drive a recovery in performance and growth. Yutong is one of the few enterprises in the industry with integrated chassis and upper assembly manufacturing capabilities. Product manufacturing has a certain cost advantage. In the context of the sharp rise in raw material prices, the company has a relatively strong ability to control costs. Its own chassis can also customize differentiated products to meet the differentiated needs of sanitation service companies. Furthermore, the company's sales network continues to expand, and the increase in brand awareness has also led to an increase in sales, and it is optimistic that the company's medium- to long-term performance will improve. Currently, the penetration rate of new energy equipment is only about 8%. In the future, the growth of new energy sanitation equipment is quite flexible. It is expected that after the “full electrification of public sector vehicles” policy is gradually implemented, demand for new energy equipment will reach an inflection point.
The company's net profit for 2024-2026 is estimated to be 270 million yuan, 310 million yuan, and 380 million yuan respectively, corresponding to PE 20x, 17x, and 14x, maintaining an “increase in holdings” rating.
Risk warning
1. Risk of deteriorating cash flow from sanitation services;
2. The competitive pattern of new energy equipment has deteriorated.