Incident: The company released the 2023 annual report and the first quarter report of 2024. In 2023, it achieved revenue of 6.312 billion yuan, +15.92% year-on-year, and net profit to mother of 1,867 billion yuan, +48.51% year-on-year. The first quarter of 2024 achieved revenue of 1,452 billion yuan, +11.53% year on year, net profit to mother of 302 million yuan, -5.40% year on year, net profit after deducting 377 million yuan, +22.37% year on year
Core view: The performance in 2023 was impressive. Q1 of 2024 was mainly affected by non-recurring profit and loss, and the profitability of the company's main business maintained a positive trend. In 2023, thanks to declining costs, structural optimization, and the combination of large-scale effects, profit flexibility was released. In Q1 of 2024, due to fair value changes and losses of about 100 million yuan due to investment in Hongxin C&D, the company's performance elasticity was still impressive after deduction. In 2024, new products in overseas markets are still in a period of quantitative contribution, and a new round of production capacity layout has begun. On the basis of refined management and strategic moats at home and abroad, growth is remarkable.
The trend of structural demand in the industry is changing, and the company's operating performance is steady. According to the China Construction Machinery Industry Association, in Q1 of 2023 and 2024, the total sales volume of the aerial work platform industry was about 20.65 and 47,500 units, respectively, +5.29% and -18.35%. By product, the industry is increasingly showing structural demand orientation. By product, scissor demand tends to be saturated and arm type continues to grow. The sales growth rate of the arm industry in Q1 in 2023 and 2024 was about 50% and 65%, respectively. In terms of the company's operating performance, Q1 revenue growth in 2023 and 2024 both surpassed the industry:
(1) By business: In 2023, the revenue of arm-type, scissor-type and mast products was +68.24%, -8.64%, and +5.17%, accounting for about 38.75%, 47.69%, and 7.99% of total revenue, respectively. Among them, the development trend of arm products is improving. The revenue share increased by about 12 pct, gross margin reached 30.52%, +9.88pct year on year, and overseas arm revenue was +141.28% year over year. The effects of cost reduction and efficiency improvement and market structure optimization were fully reflected in arm products.
(2) Market segment: In 2023, the company's internal and export sales growth rates were 15.22% and 13.35% respectively, accounting for 33.6% and 60.8% of total revenue respectively, and the structure was basically stable. From a profit perspective, the gross margins of domestic and export sales are 27.3% and 41.65% respectively. The profit level of overseas markets is significantly better than that of domestic markets. In 2023, the company has established several overseas subsidiaries and formed overseas localization teams to further improve the overseas market layout.
Profitability has been steadily increasing, and lean management results have been demonstrated. In Q1 of 2023 and 2024, the company's gross margins were 38.49% and 41.11%, respectively, +7.45pct and +3.52pct, respectively, and net margins were 29.58% and 20.82%, respectively, +6.49pct and -3.72pct, respectively. The level of gross margin has increased steadily, with ① the advantages of lean management and intelligent manufacturing on a large scale; ② the proportion of electrification and differentiated products with high added value increased; the electrification rate of the company's scissor and mast products reached 100%, and arm-type products reached 73.36%, an increase of 11.07pct; ③ the cost of raw materials decreased. Fluctuations in the net interest rate level in Q1 2024 were mainly due to non-recurring profit and loss such as changes in fair value. From the cost side, the company's expense ratio was 5.53% in 2023, +0.93pct year on year, and 8.07% during the 2024 Q1 company period, -1.33pct year on year. Expense control was basically stable.
The wholly-owned acquisition of CMEC enhances global competitiveness and creates new production capacity to open up room for long-term growth.
On the CMEC acquisition side: As of October 30, 2023, the company already holds 49.8% of CMEC's shares. The subsequent company plans to further acquire CMEC 50.2%, achieve 100% control and be included in the scope of the merger. According to the annual report, CMEC achieved revenue of about US$408 million and net profit of about US$45 million in 2023. The company's holding on CMEC not only enhances its ability to develop the North American market, but is also expected to increase the company's financial performance to a certain extent. In terms of new production capacity: The company's “large-scale intelligent high-altitude platform project with an annual output of 4,000 units” has entered the trial production stage by the end of 2023, and new products are expected to gradually enter the batch stage as new production capacity is released. On March 22, 2024, the company announced that it plans to invest in 20,000 new energy high engine projects, with an estimated annual output value of 2.5 billion yuan. This is an upgrade of production capacity in the existing product system, maintain the company's overall production efficiency, cultivate new profit growth points, and further enhance the company's industry competitiveness and sustainable development capabilities.
Investment advice: The company's revenue for 2024-2026 is expected to be 74.7/87.8/10.30 billion yuan, respectively, with year-on-year growth rates of 18.4%/17.5%/17.3%, respectively, and net profit to mother of 21.8/26.0/ 3.08 billion yuan, respectively. The year-on-year growth rates are 16.8%/19.3%/18.4%, corresponding to PE 16/13/11 times, respectively. In the future, domestic and foreign sales demand will be relatively stable, and the company's overseas competitiveness will increase. The company was given an 18X valuation in 2024, corresponding to a 6-month target price of 77.58 yuan, maintaining a “buy-A” rating.
Risk warning: European reversals lead to uncertainty about future operations; market competition increases risk; overseas market expansion falls short of expectations; release of new production capacity falls short of expectations; overseas macroeconomic fluctuations; and exchange rate fluctuations cause loss of profitability.