The 2023 results fell short of our expectations. The 1Q24 results were in line with our expectations of the company's 2023 annual report and 1Q24 results: 2023 revenue of $1,946 million, +32.2% year on year, net profit to mother of $182 million, -13.9% year on year, lower than our expectations, mainly due to revenue scale and new production capacity falling short of expectations. 1Q24 achieved revenue of $546 million, +44.2% year over year, and net profit to mother of 80 million yuan, +84.2% year over year, in line with our expectations.
Development trends
Revenue grew steadily, with the synchronizer and differential business contributing major increases. The company's overall revenue continued to grow steadily in 2023. By business, 1) synchronizer assembly business: achieved revenue of 861 million yuan, up 25.3% year on year, and recovered to 2021 level, gross margin fell slightly to 28.07%, mainly due to marginal weakening of scale effects; 2) Aviation parts: achieved revenue of 222 million yuan, +15.0% year over year, gross margin fell to 47.55%, mainly due to changes in project structure; 3) Differential business: 2023 was the second year of the company's differential business growth, achieving revenue of 2.72 100 million yuan, +124.8% year over year. Gross margin has not been corrected due to increased competition in the industry. Taken together, we believe that the decline in the company's profitability in 2023 is mainly due to high fixed amortization costs for new projects, falling short of expectations in long-term equity investment, and increased financial expenses. With the reduction in costs and improvements in financial expenses brought about by the release of new project capacity, profitability is expected to recover relatively quickly.
Accelerate the company's NEV product layout and expand business scenarios with precision speed reducers. The company will issue a convertible corporate bond project to an unspecified target within 2023. It plans to raise 550 million yuan to invest in the construction of a NEV motor shaft production line, enrich the company's NEV product line, and improve the layout of the existing automobile industry. At present, the plant construction of the company's “New Energy Vehicle Key Components Production Base Construction” project is going smoothly, and the installation and commissioning of related equipment has begun one after another to simultaneously lay out precision planetary reducers. We believe that the company's precision speed reducers are expected to be used in various fields such as new energy vehicles, bionic robots, industrial robots, smart homes, 3C electronics, medical devices, etc., providing incremental scenarios for the company's business development.
Continue to improve the dual main business and strengthen the deep integration and resource integration of aerospace business. In 2023, the company continued to increase capital, technology and resource investment in its subsidiary Hao Yiqiang to promote the continued rapid growth of its civil aircraft business. We believe that by continuously promoting interaction between aerospace business and automotive machining technology, the company will strengthen its technical reserves for precision parts manufacturing, which will help further consolidate the “automobile+aerospace” dual business layout and enhance its comprehensive strength.
Profit forecasting and valuation
Considering the impact of the car companies' price war on the profit of the auto parts business, we lowered the 2024 profit forecast by 19.0% to 302 million yuan, and introduced the 2025 profit forecast of 363 million yuan. The current stock price corresponds to 17.1 times/14.2 times P/E for 2024/2025. Taking into account the decline in profit and the upward shift in the valuation center of precision speed reducers and aviation parts, maintaining the outperforming industry rating and keeping the target price unchanged at 14.70 yuan, corresponding to 19.1 times/16.0 times P/E in 2024/2025, there is 11.8% room for growth compared to the current stock price.
risks
The downstream vehicle price war affected the profitability of the auto zero business, and the development of the differential business fell short of expectations.