Matters:

The company released its 2023 annual report, achieving full-year revenue of 129.7 billion yuan, net profit of 4.43 billion yuan, -45% year-on-year, deducting non-net profit of 3.57 billion yuan, and -52% year-on-year. In 4Q23, net profit due to mother was -80 billion yuan, compared to the same period last year of 0.1 billion yuan, the previous period was 1.54 billion yuan, deducted non-net profit of 450 million yuan, the same period last year was -230 million yuan, and the previous period was 1.32 billion yuan. Additionally, the company plans to implement an A/H share repurchase plan.

Commentary:

In 4Q23, non-net profit was deducted independently - 1.73 billion yuan, a year-on-month loss of 5.1 billion yuan/loss increase of 1.28 billion yuan, mainly affected by year-end depreciation. 4Q23 achieved revenue of 31.5 billion yuan, +6% year over month, and -13% month over month, corresponding to GAC passenger car sales of 11,000, +16% year over month, +4% month on month, Aian 129,000, +45% year on month, and -9% month on month, for a total of 240,000 yuan, +30% year on month. Excluding joint venture investment income, net profit was 1.36 billion yuan, a year-on-year loss of 6.4 billion yuan, a month-on-month increase of 1.13 billion yuan; self-deducted non-net profit of 1.73 billion yuan, a year-on-year decrease of 51 billion yuan and a month-on-month increase of 1.28 billion yuan. Among them:

1) Gross profit margin: 8.2%, -2.0pp, month-on-month; 2) Expense rate for the period: 11.6%, +3.8pp/+3.0pp, of which sales rate 6.2% /+4.2pp/+1.5pp, due to price war and year-end expenses, management rate 4.2% /+0.5pp/+1.1pp, R&D rate 1.3% /-1.2pp/+0.1pp, financial rate -0.1% /-1.2pp/+0.1pp; 3) impairment: asset impairment of 10.1 billion yuan, less year-on-year The depreciation was 1.35 billion yuan, and the month-on-month increase was 760 million yuan, mainly related to inventory depreciation for some models at the end of the year;

4) Bicycles: deducted -0.72 million yuan, a year-on-year loss of 0.49 million yuan, and a month-on-month increase of 0.54 million yuan.

Hiromoto's performance was under pressure, and Guangfeng's profit was generally maintained. In the second half of the year, Guangben achieved net profit of 600 million yuan, -84% year-on-year, bicycle profit of 0.17,000 yuan, year-on-year -0.48,000 yuan; Guangfeng achieved net profit of 9.1 billion yuan, -1% year over year, bicycle profit of 184,000 yuan, +0.02 million yuan year on year, and -0.09 million yuan month-on-month. 4Q23 Joint Venture's investment revenue was 1.28 billion yuan, -36% YoY and -28%. Based on 4Q sales volume, Guangben 205,000, YoY +21%, Month-on-month +40%, Guangfeng 264,000, YoY +10%, and Month-on-month +13%.

Trumpchi and joint ventures to electrify, and Aian's high-end transformation. 1) Trumpchi: The share of sales of high-value MPV models continues to rise, and the Julang hybrid technology brand is driving the acceleration of electrification transformation. 2) Aian: As Aian S and Y Gemini remain popular, the new Haobo brand sedan GT and SUV HT will also support growth in 2024. 3) Joint venture brands: Guangben and Guangfeng are speeding up the electrification transformation. The Guangben 120,000 NEV production expansion project is scheduled to be completed and put into operation within 2024, and the new energy models deeply jointly developed by the GAC Group and Toyota Motor are progressing according to the plan.

The company plans to implement a 5-10 billion yuan repurchase plan. The company announced an A/H share repurchase plan. Among them, it plans to repurchase an A share of 1-2 billion yuan for share incentives or employee stock ownership plans, and all of the repurchases of 400-800 million yuan of H shares will be cancelled.

Investment advice: Independent production and sales continue to rise, joint venture brands are under slight pressure. The 2023 results were affected by GAC Mitsubishi's restructuring losses, and the company will go light in 2024. Joint venture brands are currently facing severe market competitive pressure, but GAC is still driven by profit improvement. We adjusted the company's net profit forecast for 2024-2025 from 7.9 billion yuan and 8.3 billion yuan to 7.1 billion yuan and 7.7 billion yuan, and introduced the 2026 net profit forecast of 8.4 billion yuan, corresponding to EPS 0.67, 0.73, and 0.80 yuan, corresponding to 13 times, 12 times, 11 times, and 2024 PB 0.8 times PE, corresponding to H share PE 4.4 times, 4.1 times, and 3.7 times PE , 2024 PB 0.3 times. Downstream market competition affects profit expectations, but we expect the company to maintain relatively good competitiveness in joint ventures, autonomous fuel and hybrid, electric smart mid-end markets, high-end Holbo products, etc. According to market relative competitiveness and historical valuations, we adjusted the company's A share target PE from 20 times in 2023 to 15 times 2024, with a target price of 10.11 yuan, corresponding to 0.9 times PB in 2024; adjust the company's H share target PE from 8 times 2023 to 5 times 2024, corresponding to the target price 3.65 HKD, 2024 PB 0.30 times Maintain the A/H “Strong” rating.

Risk warning: Terminal price competition exceeds expectations, joint venture electrification transformation falls short of expectations, and autonomous new vehicles fall short of expectations.