Core views
In the first quarter of 2024, the company's revenue and net profit to mother were 56.38 billion yuan and 2.60 billion yuan respectively, up 5.51% and 40.07% year-on-year respectively. Q1 Performance grew steadily, mainly benefiting from the release of heavy gas truck engines and Kaiao's profit recovery. Gross margin hit a record high in the same period since 21Q1, and cost control is generally steady. In the future, the company's heavy truck and engine businesses will benefit from the recovery in industry demand and the boom in the natural gas segment. Combined with the optimization and upgrading of its own product structure, the overseas subsidiary Kaiao's operations will gradually improve, and I am optimistic that the company's performance will continue to improve.
occurrences
On April 29, 2024, the company released its 2024 quarterly report. Q1 revenue, net profit to mother, and net profit after deducting non-net profit were 56.380 billion yuan, 2.60 billion yuan, and 2,344 billion yuan respectively, up 5.51%, 40.07%, and 34.57% year-on-year respectively, and up 5.24%, 3.44%, and -3.96%, respectively.
Brief review
Q1 Performance grew steadily, mainly benefiting from the release of heavy gas truck engines and Kaiao's profit recovery. 24Q1 revenue, net profit attributable to mother, and net profit after deducting non-net profit were $56.38 billion, RMB 2.60 billion, and RMB 2,344 billion respectively, +5.51%, +40.07%, and +34.57% year-on-year, respectively, +5.24%, +3.44%, and -3.96%, respectively. According to China Automobile Association data, 272,700 domestic heavy trucks were sold in 24Q1, +12.99% year over year and +33.41% month over month. Under the domestic traffic insurance system, 45,300 heavy natural gas trucks were actually sold, +135.44% year-on-year, +1.65% month-on-month, and the domestic penetration rate reached 33.4%. In terms of engine business, 24Q1 Weichai heavy truck engine actually sold 46,400 units, -5.21% year over year, market share 34.2%, up 4.3 pct year on year, and ranked first in the industry. Among them, the sales volume of natural gas and non-natural gas heavy truck engine terminals was 30,800 units and 15,800 units, respectively, +136.76% and -56.11% year on year; in the natural gas sector, Weichai's supporting market share reached 67.6%, up 0.4 pct year on year. In terms of vehicle business, Shaanxi Heavy Duty Truck, a subsidiary of Q1, sold about 31,000 heavy trucks, +4.3% year-on-year, of which 16,000 heavy trucks were exported, +29.1% year-on-year, ranking second in the industry; sales of new energy heavy trucks exceeded 1,000 units, +56.4% year-on-year. In terms of the smart logistics business, Q1 overseas subsidiary Kaiao had revenue of 2.86 billion euros, +2.8% year over year; net profit of 110 million euros, +50.9% year over year; of these, the supply chain solutions business achieved revenue of 7.2 billion euros, and adjusted EBIT of about 18 million euros, reversing losses. The accelerated recovery of Kaiao's profit also contributed to a year-on-year increase in the Group's net profit to mother. In the agricultural equipment business, the product restructuring of Weichai Leiwo, a subsidiary of Q1 Holdings, continued to drive up unit prices and profit levels. It sold 40,000 units of various agricultural machinery, +15.1% year over year, of which nearly 4,800 units were exported, +60.8% year over year; furthermore, the increase in profit was significantly higher than the increase in revenue, and the increase in revenue was significantly superior to the increase in sales.
Q1 gross margin hit a record high for the same period since 21Q1, and cost control was generally steady. 24Q1 gross profit margin and net margin were 22.11% and 5.93%, respectively, +3.41pct and +1.73pct year over year, respectively, and -1.55pct and -0.07pct month-on-month, respectively. Both gross profit margin and net margin increased year-on-year, with gross margin higher than the same period in 2021-2023. The year-on-year improvement in profitability or directly benefited from the high unit price and high gross margin natural gas heavy truck engine product volume, which increased its share of domestic terminal equipment from 26.5% (23Q1) to 66.0%. The main driving force was that in the context of low gas prices, the overall upward trend in gas vehicle penetration in the heavy truck industry compounded the company's leading market share advantage of natural gas engines. In addition, the subsidiary Kaiao also contributed to improving profits. The 24Q1 period/sales/management/R&D/finance expense ratios were 14.33%, 5.80%, 4.63%, 3.71%, and 0.19%, respectively. The year-on-year ratio was +1.15pct, +0.34pct, +0.28pct, +0.09pct, -1.94pct, -1.33pct, +0.02pct, -0.76pct, +0.12pct. Overall, cost control was stable.
Low gas prices drive the penetration of heavy natural gas trucks, and the company's performance is expected to continue the upward trend. In 2024, the company expects sales revenue of about 224.7 billion to 235.4 billion yuan, an increase of about 5%-10% over the previous year, demonstrating the company's operating confidence. We believe that the main logic of improving fundamentals is as follows: 1) Low gas prices are expected to drive the continuous rise in the penetration rate of heavy natural gas trucks. In the first quarter of 2024, 45,300 heavy natural gas trucks were actually sold, +135.44% over the same period last year, and the domestic penetration rate has exceeded 1/3. LNG gas prices have been declining continuously since the beginning of the year, and recently stabilized at around 4,300 yuan/ton. Considering that demand shrinks after the heating season ends, there is limited room for gas prices to recover, and under the influence of international geopolitical conflicts, high oil prices continue to fluctuate, so the economy of use will continue to drive up the penetration rate of heavy natural gas trucks. The parent company, Weichai, has a market share of nearly 70% in the field of natural gas heavy truck engines. Its subsidiary, Shaanxi Heavy Truck, is also a leading gas heavy truck vehicle, and it is expected that they will continue to benefit. 2) A steady recovery in the macroeconomy or a further recovery in demand in the heavy truck industry. The domestic manufacturing PMI (50.8%, 50.4%) and the new order index (53.0%, 51.1%) both remained on the boom-bust line in March-April. With the overall recovery of the manufacturing industry and macroeconomy, demand for road freight is expected to expand, and the boom in the heavy truck industry is expected to rise, driving the company's business performance to continue the upward trend. 3) The company's product structure continues to be optimized, and high-margin products such as large bore engines continue to break through. In 2023, the company's M series large bore engines entered global high-end markets such as data engineering centers and rigid mining trucks; the vehicle business was transformed from traditional engineering vehicles to diversified products such as standard logistics, natural gas, and new energy sources, accounting for more than 30% of sales, and the high-end model X6000 sold more than 9,000 units. 4) The company accelerates the diversification of the new energy business and further consolidates its leading position. In 2023, the company completed the development of electric drive assembly products for heavy trucks, light trucks, and buses in the “three electric” business. The motor power covered 50-430 kW, and the power density was increased by more than 20% compared to competing products; a highly integrated six-in-one controller, with a maximum efficiency of 99%, and a 30% increase in integration compared to competing products; the electricity consumption of vehicles equipped with Weichai New Energy Powertrains was 5% lower than that of competing products, creating a differentiated advantage for pure electric assemblies. In terms of fuel cells, the company released the world's first high-power metal-supported SOFC commercial product. The cogeneration efficiency reached 92.55%, setting a global record, providing green and low-carbon solutions for distributed energy and microgrids; various products achieved batch support, and the product life span reached 30,000 hours, achieving global leadership in core technology and industrialization in the field of hydrogen fuel cells.
Investment advice
The company's heavy truck and engine business will benefit from the recovery in industry demand and the boom in the natural gas segment. Combined with the optimization and upgrading of its own product structure, the overseas subsidiary Kaiao's operations will gradually improve, and I am optimistic that the company's performance will continue to improve. We expect the company's net profit to be 11.8 billion yuan and 14.2 billion yuan respectively in 2024-2025, corresponding to the current PE of 13X and 11X, maintaining a “buy” rating.
Risk analysis
1. Macroeconomic fluctuations and industry cyclical risks: Heavy truck market demand is closely related to national economic development, infrastructure construction, and environmental protection policies. Affected by factors such as global macroeconomic fluctuations and industry sentiment, the company's industry is cyclical. If there are adverse changes in the macro environment, market demand, competitive environment, etc. in the future, it will adversely affect the company's business growth, product sales or production costs, and may still cause a decline in the company's business performance and adversely affect the company's continued profitability.
2. Shortage of raw materials supply and risk of price fluctuations: The company's production process depends on the timely and stable supply of several raw materials and components. Although the company has established stable cooperative relationships with major suppliers, and the relevant raw materials and parts market supply is sufficient, and prices are relatively stable, if the production and operation of the main suppliers suddenly change significantly, or if the quality of supply or time limit fails to meet the company's requirements, or the business relationship with the company changes, or the supply price fluctuates greatly and the company fails to adjust product sales prices in a timely manner in the same proportion, it may adversely affect the company's production and operation.
3. Risk of exchange rate fluctuations: The company's overseas customers account for a large share of sales revenue. If domestic and foreign economic environment, political situation, monetary policy and other factors change in the future, causing local and foreign currency exchange rates to fluctuate greatly, the company will face the risk of exchange losses.
4. R&D and innovation risk: If the products developed by the company are not popular in the market, or if the company is unable to develop and manufacture competitive products according to market needs and industry standards, the company may face the risk of failure to develop new products, which in turn may have a negative impact on the overall development of the company.