Core views

The company's 2023Q4 and 2024Q1 revenue performance was steady and profit levels increased. Mainly, the optimization of the four-wheeler and two-wheeler product structure promoted an increase in average price and gross margin. Two-wheeler products and displacement segments continued to be enriched, driving an increase in domestic sales market share and an increase in the scale of export shipments. Looking ahead to 2024, as domestic and foreign demand gradually recovers and inventories return to a healthy level, the company's sales scale will expand further, and the release of new products will drive up gross margin, and combined promotion efforts will slow down. It is expected that profit levels will continue to rise.

occurrences

On April 15, 2024, Chunfeng Power released the 2023 Annual Report and the 2024 First Quarter Report.

In 2023, the company achieved operating income of 12.110 billion yuan (YOY +6.44%), net profit to mother of 1,008 billion yuan (YOY +43.65%), and a net profit margin of 8.32% (YOY+2.16pct).

Among them, Q4 achieved operating income of 2,724 million yuan (YOY -0.90%), net profit attributable to mother of 210 million yuan (YOY +57.00%), and a net profit margin of 7.56% (YOY+2.79pct). 2024Q1 achieved operating income of 3,061 billion yuan (YOY +6.31%), net profit attributable to mother of 278 million yuan (YOY +31.97%), and a net profit margin of 9.07% (YOY+1.76pct).

Brief review

1. Revenue analysis: four rounds of inventory cleaning+structural improvement, two rounds of domestic and foreign sales growth 1) Four-wheelers: sales volume of 146,500 units, down 12.14% year on year; average price of 44,400 yuan, up 8.26% year on year; achieved sales revenue of 6.504 billion yuan, down 4.88% year on year, accounting for 53.71%; gross profit ratio of 39.52%, up 12.06 pct year on year. Affected by the decline in industry demand, in 2023, the company accelerated channel inventory optimization, reduced inventory volume by 48%, and continued expansion of US distribution outlets. European market share increased. All-terrain vehicle exports accounted for 70.79% of domestic exports of similar products, and its leading export position was stable. At the same time, the company's product structure continues to be optimized, and the release volume of new ATVs drives up average prices and increased profit levels.

2) Two-wheelers: Sales volume was 197,000 units, up 35.65% year on year; average price was 22,700 yuan, down 2.06% year on year; achieved sales revenue of 4.479 billion yuan, up 32.85% year on year, accounting for 36.99%; gross profit margin was 24.64%, up 4.12 pct year on year. The company's domestic and foreign sales both continued to grow. In terms of domestic sales, the company continued to expand the number of channels. The number of domestic dealer stores exceeded 700, achieving sales volume of 99,300 vehicles, an increase of about 9%; the average price was 22,000 yuan, a year-on-year decrease of about 3%; and sales revenue of 2,189 billion yuan, an increase of about 5% over the previous year. In terms of export sales, 400+ new overseas channels have been added, with a cumulative network of nearly 1,700 dealers, achieving sales volume of 97,700 units, an increase of about 81%; the average price was 23,400 yuan, a year-on-year decrease of about 2%; and sales revenue of 2,291 billion yuan, an increase of about 78% over the previous year. The company will launch a number of multi-cylinder models in 2024, continue to expand global channels, and the product structure and profit level are expected to continue to improve; at the same time, the electric product matrix for extreme core brands will be further improved to create a third business growth curve.

3) Accessories: Achieved revenue of 793 million yuan, a year-on-year decrease of 4.97%, accounting for 6.55%; gross profit margin of 42.83%, an increase of 12.43 pcts year-on-year.

4) Other businesses: Achieved revenue of 333 million yuan, a year-on-year decrease of 0.01%, accounting for 2.75%; gross profit margin was 12.97%, a year-on-year decrease of 16.02 pcts.

2. Profit analysis: Profit levels continue to rise, and there is still room for improvement in the long term 1) Gross profit margin and expense ratio: Structural improvements drive an increase in gross margin, and the gross profit margin in 2023 is 33.50% (YOY+8.13pct), of which Q4 gross margin is 35.53% (YOY+4.61pct), and 2024Q1 gross margin is 32.52% (YOY-1.64pct). In terms of expenses, the cost ratio increased by 5.73 pct year on year in 2023, and the sales/management/R&D/finance expense ratios were +3.37/+0.29/+1.02/+1.04pct year on year; of these, the cost ratio for the Q4 period decreased by 3.80 pct year on year, and the sales/management/R&D/finance expense ratio was -2.11/-1.27/+3.87/-4.29pct, respectively; the cost ratio for the 2024Q1 period decreased by 5.70 pct year on year, and the sales/management/R&D/finance expenses ratio was -4.33/+, respectively 0.44/+0.23/ -2.04pct Main factors: 1) The company's four-wheeler inventory has returned to a reasonable and healthy level, while overseas demand is gradually recovering, reducing promotional activities and spending; 2) the company has increased the R&D intensity of four-wheelers and two-wheelers to speed up the launch of new products in the market, and the overall R&D cost rate has increased; 3) Exchange revenue has increased year-on-year. Looking ahead to 2024, the company's gross margin is expected to continue to rise as domestic and foreign demand recovers, and the product structure continues to improve, compounded by the growth in overseas sales scale; at the same time, as the results of promotion and inventory removal gradually become apparent, the company's sales expense ratio is expected to return to normal levels.

2) Net interest rate: Net interest rate increased, profit level continuous optimization. The net interest rate in 2023 is 8.32% (YOY+2.16pct), of which the Q2 net interest rate is 7.56% (YOY+2.79pct), and the 2024Q1 net interest rate is 9.07% (YOY+1.76pct). As the product structure and gross margin continue to improve, and the cost ratio gradually returns to normal levels, the company's net interest rate level is expected to continue to rise.

Investment suggestions: The power sports industry is on the fast track of growth. Consumption upgrades and increased demand for leisure and entertainment are boosting the penetration of all-terrain vehicles and medium- and large-displacement motorcycle products. The company's products have obvious cost performance advantages. The company proposes a globalization+intelligence+electrification development strategy, which is expected to enjoy industry dividends and continue to explore new business growth points. We predict that in 2024-2026, the company will achieve net profit of 13.22/16.80/2,074 billion yuan, corresponding EPS of 8.79/11.17/13.78 yuan, and the current stock price corresponding PE is 15.93/12.54/10.16 times, maintaining a “buy” rating.

1) New product sales fall short of expectations: 2024 is a new year for the company's product promotion. If new products do not accurately capture consumer demand, or if product strength and cost performance are lower than competitive products, the sales situation may be poor, which in turn will affect the current year's performance.

2) Competition in the industry intensifies: The domestic competition pattern for medium and large displacement motorcycles is scattered, and Chunfeng 250cc+ accounts for less than 20% of sales. If Japanese brands increase their investment in the field of medium and large emissions, or shift production of medium and large emissions products to China to further reduce costs and improve the cost performance ratio and competitiveness of products, domestic medium and large emissions may face the possibility of increased competition or even reshuffle.

3) Freight and exchange rate fluctuations: The company's business is mainly all-terrain vehicle exports, so it is greatly affected by freight rates and exchange rates. First, the overall freight rate is currently at a low level. If freight rates increase drastically, it will not only increase product transportation costs, which will have a negative impact on gross margin, but also create resistance to exports, thereby affecting the overall operation of the company. Second, long-term exchange rate fluctuations will affect the business strategies of foreign trade enterprises. The US dollar exchange rate fluctuates greatly in the short term. Currently, the spot exchange rate of the US dollar to RMB is above 7.2, which is at a high level compared to the same period last year.