Key points of investment
Incident: In 2024, the company achieved revenue of 2,660 billion yuan, a year-on-year decrease of 1.35%; realized net profit of 396 million yuan, a year-on-year decrease of 4.44%; realized net profit without deduction of 357 million yuan, a year-on-year decrease of 4.61%. In 2024Q1, revenue of 585 million yuan was achieved, a year-on-year decrease of 6.48%; net profit to mother was 65 million yuan, a year-on-year decrease of 19.59%.
Against the backdrop of downstream demand under pressure, the company's main reducer business is showing resilience. Insufficient market demand combined with falling raw material prices has led to intense market competition and pressure on product prices. The company is a leader in the industry. Revenue and net profit to mother remained stable in 2023, showing strong resilience. The competitiveness of the company's products continues to increase, actively seize market share and promote domestic substitution. Annual sales of about 654,500 speed reducers were sold, an increase of about 7.64% over the previous year. At the same time, the product structure continued to be optimized, and the number of gear reducers shipped and sales with high added value continued to grow, and the sales volume of industrial gearbox products increased by about 20% over the same period last year. Revenue declined slightly in 2024Q1; the first quarter accounted for a limited share of the whole year due to the impact of the Spring Festival holiday, so we still need to pay attention to subsequent demand.
Control fees, increase efficiency, and operate steadily. In 2023, the company's gross profit margin was 26.01%, down 0.73 pct year on year; net profit margin was 14.78%, down 0.49 pct year on year; 2024Q1 trend continued, and market price fluctuations put pressure on profitability. The company's expense ratio for the 2023 period was 10.14%, down 0.20pct year on year. Among them, sales/management/R&D/finance expenses rates were -0.03pct/-0.70pct/+0.33pct/+0.21pct, respectively, which remained stable; during the 2024Q1 period, the cost ratio also declined year on year, and the cost control capability was good. The company's net operating cash flow in 2023 was $533 million, +51.58% year-on-year, smoothly crossing the bottom of the industry cycle.
Increased R&D, platform-based layout, continuous product enrichment. In 2023, the company spent 127 million yuan on R&D, +6.08% year-on-year. Research and development promotes the improvement of the product spectrum: the general speed reducer business added BOM for about 40,000 product models throughout the year; new displacement gearbox products jointly developed by the subsidiary Genuo and ABB, some of which have already been shipped in batches; and planetary reducers are being developed for new markets such as marine engineering, photovoltaics, wind power, and elevators. Guomao Precision's new harmonic reducer products expand CNC machining centers and mobile robot scenarios.
Dig deeper into downstream market segments and expand business areas. The company grasps leading customers in many fields and further deepens business cooperation with emerging high-quality customers such as BYD, Pilot Intelligence, CITIC and Tianyuan Equipment. Accelerate the construction of a project-based cooperation model and win bids for several major projects. Promote products overseas, and overseas markets such as Southeast Asia, the Middle East, and Russia continue to receive new and repurchase orders.
At the same time, the company increased its foreign investment efforts, acquired 65% of Modoli Transmission's shares, and entered the field of precision planetary gearboxes.
Investment advice: Short-term market demand is still recovering weakly. The company strengthens product upgrades and actively expands new businesses. Profitability may gradually improve as industry prosperity recovers. We adjusted the 2024/2025 net profit forecast (previous value was 506/610 million yuan) and introduced the 2026 forecast. The company's estimated net profit for 2024-2026 is 4.65/5.35/620 million yuan, the estimated EPS is 0.70/0.81/0.94 yuan, and the corresponding PE is 20X/18X/15X respectively, maintaining the “buy” rating.
Risk warning: Macro sentiment recovery is weaker than expected; risk of new business expansion falling short of expectations; risk of fluctuating raw material prices.