Description of the event
The company released the 2023 annual report and the 2024 first quarter report. In 2023, the company achieved revenue of 13.066 billion yuan, +5.29% year over year; realized net profit of 583 million yuan, +10.65% year over year; and realized net profit of 642 million yuan without return to mother, +35.71% year over year. 2024Q1 achieved revenue of 3.296 billion yuan, +20.41% year over year; realized net profit of 258 million yuan, +39.25% year over year; realized net profit of 247 million yuan without return to mother, +60.70% year over year.
Incident reviews
Focusing on the development of the main business “motorcycles+general machinery”, our own brands have achieved historic breakthroughs. The company's motorcycle vehicle, motorcycle engine and general machinery business contributed 7381, 16.70 billion yuan and 2,733 billion yuan respectively in 2023. Independent brand revenue increased 31.52% year-on-year, accounting for 23.66% of the company's revenue. In the main motorcycle business, Infinity VOGE motorcycles achieved revenue of 1,492 billion yuan, an increase of 57.05% over the previous year, accounting for about 20% of the company's motorcycle business. The monthly sales volume of extremely high-displacement motorcycles has taken first place in the industry many times, and the total sales volume for the whole year has steadily ranked in the top three in the industry. In the ventilation business, although revenue fell 19.93% year over year due to adverse factors such as slowing global economic growth, high core inflation, rising geopolitical risks, and the US “double reverse,” the internal structure of the business was gradually adjusted. Currently, lawn mower products launched in collaboration with the world's top garden brand Husqvarna sell well in the European market. In the future, new products such as garden machinery and energy storage will be deployed to actively promote the upgrading and transformation of general machinery products.
Profitability is increasing steadily, and the share of management and sales expenses continues to expand. The company's comprehensive gross profit margin and deducted non-net profit margin in 2023 were 18.54% and 4.91% respectively, up 1.15 pct and 1.1 pct year on year. Among them, the motorcycle business achieved a gross profit margin of 17.85%, an increase of 1.26 pct year on year.
2024Q1's comprehensive gross margin and net net profit margin were 17.71% and 7.49%, respectively, maintaining an upward channel. In terms of period expenses, the company has always insisted on R&D investment. The R&D cost rate in 2023 was 3.74%, and 2024Q1 was 3.50%, which is always at a high level. However, due to the gradual emergence of consumer goods attributes of motorcycle products, sales and management expenses increased by 0.28 pct and 0.63 pct, respectively, in 2023 to 1.65% and 4.45%, respectively, and 2024Q1 was 1.83% and 4.39%, respectively. Advances in the company's main manufacturing technology require continuous investment in R&D, while the attributes of consumer goods also required the company to continuously invest and expand marketing channels.
The motorcycle business bucked the trend, and the construction of marketing channels followed the pace of going overseas. In 2023, the motorcycle industry achieved sales volume of 18.99 million units, a year-on-year decrease of 11.34%. Among them, domestic motorcycles achieved sales volume of 10.6739 million units, a year-on-year decrease of 22.51%; the export market achieved sales volume of 8.316,800 units, an increase of 8.79% over the previous year. After years of development, China's motorcycle industry has continued to improve its product strength and brand power. It already has the conditions to compete with international brands in the international market. At the same time, domestic enterprises are also paying more and more attention to the export market, and have carried out extensive layout from products to channels. The industry is generally showing a downward trend, but the export market is showing strong demand. Competition within the industry is bound to intensify. Facing clearance of low-quality production capacity, leading companies will further expand their market share, especially those with competitive advantages in overseas markets. The company has been actively expanding global channels and participating deeply in industry activities. Currently, it has built 1,334 sales outlets globally and 864 foreign market channels (including nearly 700 in Europe), participated in events such as the Italian International Two-Wheeler Exhibition and the Las Vegas Motorcycle Show, and promoted its own brand in all aspects through social media matrices such as Douyin and Facebook. With the establishment of marketing channels, the company's motorcycle brands have formed a high level of popularity in markets such as Italy and Spain. Combined with the empowerment of its deep partner BMW in the European market, it is expected to buck the trend and expand, bringing increased momentum for the company's growth.
The general machinery industry is expected to usher in an inflection point, with steady growth and internal optimization. The company's general machinery products mainly include general purpose power equipment, energy storage power supplies, small household generators, non-road generators, etc. Among them, the To-C side accounts for the main share, and the target market is mainly overseas. Since the end of 2021, the ventilation industry has been in the inventory removal stage for more than two years, and the average service life of mainstream ventilation products is also 2-3 years. It is expected to reach an inflection point in the near future. In particular, 2024Q1 can already see rapid growth in demand related to some garden machinery industry chains. The company's general machinery products are gradually progressing to categories with higher added value, while continuing to deepen cooperation with Husqvarna on garden machinery, agricultural machinery and other products. In the future, while the general engine business is growing steadily, it will also continue to carry out internal structural adjustments to optimize to fields with higher profitability.
Settle yesterday's heavy accumulation and lay out new businesses to open up Suihuaxin. The company has carried out many mergers and acquisitions in the industrial chain before, but the results were mostly unsatisfactory. During the period 2021-2023, the company accrued credit and asset impairment losses of 5.22, 5.74, and 389 million yuan (mainly from goodwill and assets held for sale) of 5.22, 5.74 million yuan, and non-operating expenses of $174 million in 2023, mainly termination payments after the proposed disposal of the subsidiary's Italian CMD shares. At present, the goodwill impairment of loss-making subsidiaries such as Guangzhou Vaillant and Italian CMD has basically been calculated. In addition, the controlling shareholder may usher in new incentives after the restructuring is completed. It can be said that the original haze affecting the company's business development is gradually dissipating, and it is expected that large profit margins will be released starting this year. Moreover, under the strategic development plan focusing on the main business, the all-terrain vehicle business announced by the motorcycle business achieved a year-on-year increase in revenue growth of more than doubled in 2023, and the newly laid out digital energy business is also progressing in an orderly manner. These new businesses will all bring new growth points to the company from scratch.
We believe that the company focuses on the main business of motorcycles, general machinery, etc., has accumulated deep brand awareness and technology, built a complete marketing network in many countries and regions around the world, and has deep cooperation with world-renowned companies such as BMW and TORO. At the same time, the company's motorcycle and general machinery exports are at the forefront of the industry. After optimizing the business strategy and product structure and resolving the impact of past mergers and acquisitions, it is expected that it will benefit deeply from the trend of motorcycle products going overseas and the inflection point of growth that the general engine business is about to usher in.
Profit forecasting and valuation
The company's 2024-2026 revenue is estimated to be 140.83, 15.864, 17.833 billion yuan, respectively, +7.78%/+12.65%/+12.41% year-on-year, and net profit to mother of 11.14 billion yuan, 13.26 billion yuan, 1,683 billion yuan, and +90.89%/+19.04%/+26.92% year-on-year. The corresponding PE valuation is 13.85/11.63/9.17, respectively. The corresponding PE valuation is 13.85/11.63/9.17, respectively.
Risk warning:
Competition in the motorcycle market increases risks; downstream geopolitical risks in the air traffic business; risk of controlling shareholder restructuring impacts; risk of subsidiary receivables falling short of expectations.