Core views
The refrigeration business grew steadily in '23, and Auto Zero continued to grow at a high rate. Q4 revenue growth and profit margins were greatly disrupted by factors such as changes in accounting standards and non-recurring profit and loss. The Q1 refrigeration business benefited from a boost in downstream demand such as household air conditioners. Revenue achieved double-digit growth and profitability restoration. The auto parts business was constrained by demand from major North American customers, and the revenue growth rate declined somewhat. The company's competitive advantages in technology, products and customers are stable, and new businesses such as robotic electromechanical actuators are expected to open up new growth space in the medium to long term.
occurrences
The company announced its annual report for the year 23 and the quarterly report for '24, achieving revenue of 24.56 billion yuan, +15.0% year on year, achieving net profit of 2.92 billion yuan, +13.5% year on year; 24Q1 achieved revenue of 6.44 billion yuan, +13.4% year on year, net profit to mother of about 648 million yuan, +7.8% year on year, net profit of non-return to mother of about 671 million yuan, +20.5% year on year.
Brief review
The refrigeration business grew steadily in '23. Auto Zero continued to grow at a high rate, and there were many disturbances in Q4.
In '23, the company's refrigeration and auto parts business achieved revenue of 146.4 billion yuan and 9.91 billion yuan, respectively, of which NEV thermal management revenue was 8.93 billion yuan; net profit to mother was about 13.78 billion yuan and 1,544 billion yuan, respectively, +22.1% and +54.4% year on year; corresponding gross margin was about 28.20%, 27.43%, +2.04 and 1.51 pct year on year, respectively. Net profit margins to mother were about 9.4% and 15.6%, respectively, +1.25 and +2.27pct.
Q4 achieved revenue of 5.58 billion yuan in 2013, -2.9% year-on-year, net profit of 760 million yuan, year-on-year. The main reasons for the company's revenue growth and profit weakening in the current period were: 1) Q4 companies concentrated on confirming 500 million demolition revenue in Q4 in '23, and withheld non-net profit of 694 million yuan, +28.7% year-on-year; 2) The auto zero business grew by about 45% year-on-year in the first three quarters. Q4 was only about 2.3%. The growth rate declined mainly due to changes in accounting standards (revenue from two-way distribution of raw materials was excluded) Centralized confirmation, current Auto Zero's net profit margin was as high as 22.2%, +8pct year on year; without considering this impact, 24Q4 Auto Zero's revenue is expected to grow by about 25% year on year.
Short-term pressure on NEV production and sales from major customers has dragged down the company's auto zero revenue growth rate.
The company's largest auto zero business customer accounts for close to 40% of revenue. In the short term, this customer was limited by factors such as the slow pace of new model launches and increased competition in the industry. Production growth rate declined for three consecutive quarters in the second half of '23. 23Q3-24Q1 was about 18%, 13%, and -1.7%, respectively. The company's Q1 auto zero business revenue is estimated to be about 2.57 billion yuan, +16.2% year over year. Furthermore, customers from overseas OEMs such as Volvo and GM may also be constrained by factors such as declining electrification support policies in Europe and the US, contributing relatively limited to short-term revenue growth.
Gross margin continued to rise steadily, and external factors such as exchange rates weighed down on net profit margins.
The overall gross margin of the Q4 company in '23 was about 29.24%, +0.58pct year on year, of which the refrigeration and auto parts business were about 29.8% and 28.5%, respectively, -0.13 and +1.72pct, respectively; the overall gross margin of the Q1 company in '24 was about 27.05%, +1.48pct year on year, -2.19pct month on month; the net profit margin declined mainly due to: 1) current management expense ratio +1.1 pct year on year; 2) fair value The net change loss was about $39 million, and the profit for the same period last year was $52 million, mainly due to the current foreign exchange forward contract loss of $58 million, while the profit for the same period last year was 0.18 million yuan. If exchange gains and losses (+43 million yuan year on year) were taken into account, foreign exchange related losses increased by about 33 million yuan over the same period last year; 3) In addition, the company's current credit impairment losses increased by 37 million yuan year on year.
The issuance of equity incentives is conducive to consolidating the company's talent reserves and internal cohesion. In late April of this year, the company released a new 24-year equity incentive draft, continuing a new round of equity incentive practices for two years, and expanding the scale and scope of grants. It is proposed to grant 25 million restricted shares (0.67% of total share capital) and 920,000 share value-added rights to incentive recipients. The restricted shares come from the repurchase of shares. The grant price is 12 yuan per share. The three-year (24-26 years) release conditions are no less than 17% average ROE (after deducting the impact of idle funds raised), and the lifting ratio is 30%/30%/40%, respectively.
Investment advice: The company's refrigeration and heat management business has comprehensive advantages such as technical personnel, product portfolio and customer resources, and leads the global market share of valves and other products.
The short-term refrigeration business has benefited from a boost in downstream demand such as household air conditioners and a restoration of profitability. The growth rate of the auto zero business has declined slightly, but the competitive advantage is stable, and new businesses such as robotic electromechanical actuators are expected to open up new medium- to long-term growth space. The company's net profit for 2024-2025 is estimated to be about 3.41 billion yuan and 4.08 billion yuan, respectively, +16.9% and +19.4% year-on-year, corresponding to PE of about 24.0 and 20.1 times, respectively, maintaining the “buy” rating.
Risk warning: Industry sentiment falls short of expectations, industry competition deteriorates, raw material prices fluctuate sharply, new customer expansion and production capacity investment fall short of expectations.