Incident: The company released its 2023 annual report and 2024 quarterly report. In 23, the company achieved revenue of 2.24 billion yuan, +10.4% year-on-year; net profit to mother was 280 million yuan, +11.8% year-on-year. 23Q4 revenue was $630 million, +9.3% YoY; net profit attributable to mother was $67 million, -24.9% YoY; 24Q1 achieved revenue of $630 million, +0.4% YoY; Net profit to mother was $88 million, +13.8% YoY. The performance was in line with expectations, and the company's profitability increased.
Product structure optimization and increased gross margin of hydraulic components led to an increase in the company's overall gross profit margin and net profit; emphasis was placed on R&D, and the company's cost ratio increased slightly during the period. In 2023, the company's comprehensive gross profit margin was 31.9%, +3.1 pp. The increase in gross margin was mainly due to changes in the company's product structure, increase in sales share of high-margin products, and fluctuations in raw material prices. Among them, the gross margin of the hydraulic parts business increased by 3.9 pp; net profit margin was 12.5%, +0.2 pp; the company's period expense ratio was 15.7%, +1.2pp, among which sales, management, R&D and financial expenses were -0.7pp, +0.9pp, and +0.6pp, respectively, mainly due to the increase in the company's depreciation and interest expenses Increased R&D investment. The 24Q1 company's comprehensive gross margin was 30.6%, +0.9pp year on year, and the net margin was 14.0%, +1.6pp year on year. In addition to being driven by gross margin, the increase in net margin was also affected by the year-on-year increase in other 24Q1 earnings and the year-on-year decrease in credit impairment losses; the cost ratio for the period was 14.0%, +0.6pp year over year.
The differentiated competitive strategy of breaker accessories has led to significant results in the company's revenue growth, and new businesses such as robots, hard alloy tools, and power batteries are expanding smoothly. Looking at the traditional main business, in 2023, the differentiated competitive strategy of the breaker accessories business (consolidating the market share of light and medium hydraulic breakers and strengthening the promotion of heavy hydraulic breaker products) achieved remarkable results, achieving revenue of 1.09 billion yuan, +19.3% year over year, accounting for 48.6%, +3.7pp year on year, and gross margin increased 0.06pp to 31.8%; the hydraulic parts business achieved revenue of 1.10 billion yuan, +2.1% year over year, accounting for 49.1% year on year. Judging from the revenue of emerging business subsidiaries cultivated by the company, industrial robots achieved revenue of 0.3 million yuan, +51% year over year; hard alloy tools achieved revenue of 59 million yuan, +107% year over year; power batteries acquired in 2022 achieved revenue of 156 million yuan, and new business cultivation is expanding smoothly.
The transformation of the traditional main business was smooth and gradual, and the new business created the company's second growth pole. 1) The company's traditional sector is highly competitive, and the downstream penetration rate is expected to increase. The company is a leading domestic breaker manufacturer. The product has global competitiveness and strong ability to obtain orders. Currently, the market share of crushing equipment is picking up, and the company's heavy hydraulic breaker market share continues to rise. The business is expected to pass through the downward cycle of excavators; downstream customer penetration rate of hydraulic components such as pumps, motors, valves, etc. is relatively low. As the localization of high-end hydraulic components for construction machinery accelerates, the business revenue is expected to grow steadily. 2) Deeply lay out the fields of industrial robots, power battery packs, tungsten carbide tools, etc., to create the company's second growth pole. The company began to lay out the VR reducer and heavy-duty industrial robot business in 2015, and acquired Yien New Power in 2022 to form a collaboration with the company's original power battery business to help comprehensively promote the development of products and core technologies related to motors, electronic controls, batteries, energy storage, etc., and the new business is expected to become the company's medium- to long-term growth engine.
Profit forecasting and investment advice. The company's net profit for 2024-2026 is estimated to be 3.6, 49,640 million yuan, and the corresponding EPS is 0.43, 0.59, and 0.77 yuan. The current stock price corresponds to PE 40, 29, and 23 times, and the compound growth rate of net profit to mother over the next three years is 32%, maintaining a “holding” rating.
Risk warning: Risks such as downstream demand recovery falling short of expectations, fluctuating raw material prices, and falling short of expectations in new business expansion.