2023 results are in line with our expectations
The company announced its 2023 results: revenue of 74.019 billion yuan, down 8.4% year on year, net profit to mother of 4.527 billion yuan, up 6.0% year on year, corresponding to earnings of 0.53 yuan per share. The results are in line with market expectations.
1Q24's revenue was 17.830 billion yuan, down 0.9% year on year, and net profit to mother was 1,580 billion yuan, up 4.5% year on year. Net profit was slightly higher than market expectations, mainly due to the increase in the company's profitability.
The increase in overseas share has led to a continuous increase in gross margin. In 2023, the company's revenue for pile construction machinery/excavation machinery/pavement machinery was 21/276/25 billion yuan respectively, down 32%/23%/19% year on year; revenue from concrete machinery and lifting machinery was 153/13 billion yuan respectively, up 2%/3% year on year. Domestic revenue fell 31.97% year on year to 28.3 billion yuan, and overseas revenue increased 18.28% year on year to 43.3 billion yuan. Affected by the decline in raw materials, the strengthening of the US dollar exchange rate and the increase in overseas shares, the company's comprehensive gross margin increased by 3.7 ppt to 28.5% year on year in 2023, of which 1Q24 gross margin increased 0.4 ppt to 28.8% year on year.
Net interest rate increased year-on-year, and operating cash flow was optimized. The company's expense ratio increased by 0.02ppt year-on-year during the 2023 period, with sales and management expenses increasing 0.6/0.3ppt year-on-year. Net interest in 2023/1Q24 increased 0.8/0.5ppt year-on-year to 6.1%/8.9%. In 2023, the company's net cash flow from operating activities was 5.7 billion yuan, up 39.2% year on year.
Development trends
Domestic construction machinery industry demand is at the bottom. According to statistics from the Construction Machinery Industry Association, domestic excavator sales in 2023 were 90,000 units, down 40.8% year on year, and domestic sales of truck cranes were 17,000 units, down 18.6% year on year. According to statistics from the Construction Machinery Industry Association, domestic sales in the 1Q24 excavator and crane industries fell 8%/32% year on year, respectively. The domestic decline in excavators narrowed domestically and corrected in a single month in March, while the domestic decline for truck cranes increased. Looking ahead, we expect that with the real estate policy, China's demand for construction machinery will gradually stabilize, and we expect domestic sales of excavators to drop by 5% in 2024.
We are optimistic about overseas market development opportunities for a long time, and the European and American markets have opened up future space for the company. In 2023, the company achieved overseas sales revenue of 43.258 billion yuan, an increase of 18.28% over the previous year, including 16.5 billion yuan in Asia and Australia; 16.25 billion yuan in Europe, an increase of 37.97%; 7.58 billion yuan in the American region, an increase of 6.82%; and 2.92 billion yuan in Africa, an increase of 2.56%. In terms of products, according to customs statistics, the company's overseas exports of excavation machinery, lifting machinery, and concrete machinery products all maintain the first place in the industry, and its market position is stable. We are optimistic about the company's development in the European and American markets for a long time.
Profit forecasting and valuation
We maintain the 2024 EPS forecast of 0.68 yuan and increase the 2025 EPS by 12.1% to 0.83 yuan. The current stock price corresponds to 2024/2025 24x/20x P/E. The valuation switched to 2024, and we raised our target price by 15% to 20.39 yuan, corresponding to 24/25 27/22x P/E, corresponding to 25% upward space.
risks
Downstream demand falls short of expectations; raw material costs are rising.