Incident: Bafang Co., Ltd. issued a semi-annual performance forecast for 2023: The company expects net profit of 0.90 to 115 million yuan in 2023H1, a year-on-year decrease of 67.18% to 74.31%; after deducting non-return net profit of 0.77 to 120 million yuan, a year-on-year decrease of 70.66% to 77.85%. Among them, 2023Q2 achieved net profit of 0.43 to 68 million yuan, a year-on-year decrease of 59.94%-74.58%; net profit after deducting non-return net profit of 0.4 to 65 million yuan, a year-on-year decrease of 62.16%-76.76%.

Comment:

The boom in the overseas terminal market is relatively weak, and high inventories have yet to be digested. Affected by factors such as geopolitical conflicts and inflation, the overall boom in the overseas e-bike terminal market is weak. Consumer demand is insufficient, and high inventory levels within the channel are slowly digested. 2023Q1 achieved operating income of 452 million yuan, a year-on-year decrease of 40.72%; net profit of 47 million yuan, a year-on-year decrease of 74.06%; net profit after deducting non-return net profit of 37 million yuan, a year-on-year decrease of 78.91%. According to performance forecasts, 2023Q2 achieved net profit of 0.43 to 68 million yuan, a year-on-year decrease of 59.94%-74.58%; net profit after deducting non-return net profit of 0.4 to 65 million yuan, a year-on-year decrease of 62.16%-76.76%. In median terms, the year-on-year decline in Q2 profit was slightly narrower than in Q1.

The long-term trend in overseas markets has not changed, and the focus is on the inflection point of e-bike inventory. European market: According to data from the European Cycling Association (CONEBI), European e-bike sales reached 5.1 million units in 2021, an increase of 12.3% over the previous year, and the market penetration rate increased to about 23.2%. In the long run, European cycling culture has been around for a long time. More and more countries and consumers are aware that bicycles and e-bikes are an important development direction for future means of transportation. Increased government subsidies will also further boost sales growth. The e-bike market is still in a booming stage of development, and we expect the market penetration rate to increase further. US market: US e-bike sales in 2021 were 1.41 million units, up 40.7% year over year, and penetration rate increased to 3.8%. Judging from a series of tax credits, commuting allowances, and tariff suspension policies proposed by the US government, as well as the current low penetration rate of the US market, the US market still has great potential for development in the future. Judging from the penetration rate of the Japanese market (the penetration rate of electric bicycles in 2022 was 53.27%), there is still huge room for improvement in the penetration rate of the European and American markets. Inventory is currently still high due to the fact that retailers stocked a lot of goods before, which had a negative impact on the company's 23H1 sales. However, in the long run, the trend of further increasing the penetration rate of electric bicycles overseas has not changed, and we are still optimistic about the company's long-term development prospects.

Profit forecast, valuation and rating: Considering the relatively weak overseas demand, we lowered the company's profit forecast for 23-24 years and added the profit forecast for 25 years. The company is expected to achieve a net profit of 4.2/5.4/700 million yuan (62%/60% /new increase) in 23-25. The current stock price corresponds to 22/17/13 times PE in 23-25. Considering that the long-term trend of increasing the penetration rate of e-bikes in overseas markets has not changed, the “increase in holdings” rating is maintained.

Risk warning: Market competition increases risk, and demand from Europe and the US falls short of expectations