incident. The company disclosed the 2023 annual report and 2024 quarterly report: 1) According to the 2023 annual report, the company's operating income in 2023 was 3,932 billion yuan, +13.83% year over year; net profit to mother was 809 million yuan, +64.92% year over year; net profit after deducting non-return to mother was 791 million yuan, +67.14% year over year. Among them, 23Q4's revenue was 623 million yuan, -9.14%; net profit to mother was 95 million yuan, -14.00% year over year; net profit after deducting non-return to mother was 94 million yuan, -16.95% year over year. 2) According to the 2024 quarterly report, the 24Q1 company's revenue was 884 million yuan, -7.01% year on year, net profit to mother was 173 million yuan, -17.74% year-on-year, after deducting net profit of 170 million yuan without return to mother, or -18.74% year on year.
Profitability remained high, and overseas gross margin increased significantly. According to Wind, the company's gross profit margin in 2023 was 37.54%, +4.64pct year on year; net profit margin was 20.58%, +6.38pct year on year. We think it is mainly due to the increase in the share of overseas imports and exports with high gross margins. According to the 2023 annual report, the company's overseas business revenue in 2023 was 768 million yuan, +221.2% year on year, accounting for 19.54% of revenue, +12.62 pct year on year, gross margin of 50.50%, and +10.52pct year on year. According to Wind, 23Q4's gross profit margin was 27.51%, -4.24pct year on year; net profit margin was 15.30%, -0.87pct year on year. The 24Q1 company's gross profit margin was 33.97%, -8.55pct year on year, +6.46pct; net profit margin was 19.57%, -2.55pct yoy, +4.27pct month-on-month. 24Q1 profitability was under slight pressure year on year, improving month-on-month.
Expense rate control is good. According to Wind, the company's sales/management/R&D/finance expenses rate in 2023 was 2.91%/4.30%/6.19%/-4.02%, respectively, with a year-on-year change of +0.27/-4.58/+0.19/ -1.54pct. Among them, 23Q4 sales/management/ R&D/ finance cost ratios were 3.92%/-2.84%/9.79%/-7.43%, respectively, with a year-on-year change of +1.67/-8.21/+2.27/ -4.78pct. The sharp decrease in management expenses in 2023 was mainly due to a sharp drop in payment fees for confirming shares in 23 compared to the previous year; the sharp decrease in financial expenses was mainly due to a sharp increase in interest income and foreign currency exchange income due to an increase in monetary capital in 23. The 24Q1 sales/management/ R&D/ finance ratio was 2.27%/3.52%/5.94%/-3.18%, respectively, with a year-on-year change of +0.22/ -1.82/+0.63/-2.11pct, maintaining a good level.
Orders are relatively sufficient, and it is expected that it will continue to benefit from the expansion of overseas lithium battery production. 1) According to Wind, at the end of each period 2022/2023/2024Q1, the company's inventory was about 23.81/29.01/2,881 billion yuan, respectively, and contract liabilities were 1,502/22.39/2,213 billion yuan respectively, which confirms that the company has sufficient orders in hand. 2) Lithium battery companies led by China, Japan, and South Korea will continue to expand production capacity in the US, Europe, and Southeast Asia, while overseas battery manufacturers will continue to emerge, led by automakers such as Volkswagen, Toyota, and Tesla, to join the local lithium battery production expansion force. The company's customers include high-quality domestic and foreign companies such as SK, LG, Samsung SDI, Panasonic, Toyota, AESC, Everweft Lithium Energy, BYD, and Guoxuan Hi-Tech, and it is expected that they will continue to benefit from the expansion of overseas lithium battery production.
Profit forecasting and valuation. We expect the company's net profit for 2024/2025/2026 to be 964/11.45/1,321 million yuan (24-25 was 955/ 1,150 million yuan), an increase of 19.1%/18.8%/15.4% year-on-year; EPS was 1.60/1.90/2.19 yuan (24-25 original forecast was 1.58/1.90 yuan/share). Considering the company's huge advantage in actively developing overseas markets, we gave the company a target price of 17 times PE valuation in 2024, and a target price of 27.14 yuan/share (original target price was 23.73 yuan/share, 15 times PE valuation in 2024, +14%), corresponding to a market value of 16.4 billion yuan, “superior to the market” rating.
Risk warning. Risks of declining company orders and performance due to downstream expansion and reduction, overseas expansion of lithium battery equipment falling short of expectations, increased industry competition, and repayment risks.