1. Focus on value transformation and practice internal skills, and further improve R&D channels and supply chain capabilities. Although the past three years have been challenged by the external environment, the company has steadfastly invested in cultivating internal skills. At present, we believe that the company's R&D system, global marketing network and supply chain have all made breakthrough progress, paving the way for subsequent high-quality growth.
In terms of R&D, the three-level R&D architecture built by the company over seven years has been fully applied, and the reuse rate of its basic technology platform exceeds 80%. We believe that with the introduction of the platform, the company can better cope with the development of fragmented scenarios, which is expected to help the company expand in the market for segmented commercial vehicle information processing solutions.
In terms of channels, as of 2023, the company has set up 8 subsidiaries and 8 offices overseas (the number of subsidiaries in '22 was 4), covering more than 100 countries or regions around the world.
On the supply chain side, the company officially put into operation an intelligent manufacturing center in Vietnam, and hopes that products sold to overseas customers will be manufactured in a Vietnamese factory by the end of '24 to ensure the safety of the supply chain for overseas business.
2. Breakthrough in the white space and expansion of product categories, the overseas business ushered in a harvest period. According to Berg Insight's forecast, the European and American automotive video information processing system market is expected to reach 18% CAGR in 23-27. While the industry has a high growth rate, the company is actively exploring opportunities in Latin America, the Middle East and other regions. At the same time, the company is actively developing new products for the police and other vertical industries. Considering the expansion of the company's new regions and categories, the company's overseas growth rate is expected to be higher than the market average.
Front-end equipment follows domestic automakers going overseas, and the implementation of the European standard on July 1 is expected to open up room for long-term growth. The company has now cooperated with many domestic bus manufacturers to help them export to Europe. With the implementation of European standards for commercial vehicles in EU countries starting in July '24, the company's front-mounted safety systems are expected to follow domestic car manufacturers overseas. The European standard is currently a strict global safety standard, and the value and profit margin of Ruiming front-end products may be high. Considering that the implementation of the European standard is still in its early stages, and Sharp is an approved supplier with a leading edge in technology, future European standard products are expected to expand to non-passenger models and local European brands, opening up room for long-term growth for the company.
4. Increased overseas share and restoration of R&D expenses. The company's long-term net interest rate is expected to be close to 15%. The company's gross margin of overseas business in '23 reached 57.36%, and the domestic gross margin was 27.34%, driving the company's 23-year gross margin to 42.95%, an increase of 4.2 pct over the previous year. Considering the high growth rate of overseas business driving its share increase, the company's gross margin is expected to increase further. At the same time, in terms of R&D cost ratio, the company's R&D cost rate in 2023 is 14.50%, and R&D expenses yoy -12.55%. With the full application of the three-level R&D structure, R&D and management costs are expected to be further reduced. Referring to the company's 20 years of good cost control, the net interest rate reached 15%, and the company's profitability is expected to approach 15%.
Profit forecast and investment suggestions: Considering the positive development of the company's R&D and channels, we believe that the company's overseas business is expected to increase the company's profit level. Considering that the company continues to promote high-quality development, the original profit forecast was adjusted from 2024/2025 revenue of 2,722/3.486 billion yuan to 2024/2025/2026, and net profit to mother was adjusted from 163/281 million yuan in 2024/2025 to 2.02/301/394 million yuan in 2024/2026, maintaining the “buy” rating.
Risk warning: Overseas business development falls short of expectations, risk of changes in the competitive landscape, risk of exchange rate fluctuations.