Incidents. The company disclosed its 2023 annual report: 1) The company's annual revenue for the 2023 annual report was RMB 3,512 million, +24.44% year on year, net profit of 2.86 yuan, +7.25% year on year, net profit after deducting non-return to mother was 250 million yuan, +4.34% year on year; 2) 23Q4 revenue for the single quarter was 958 million yuan, +3.17% year on year, net profit to mother of 34 million yuan, year-on-year.
Cash flow has improved significantly, and lithium battery equipment continues to be the main source of revenue. 1) In 2023, the net cash flow from the company's operating activities was 236 million yuan (-199 million yuan in 2022), a significant improvement. This is mainly due to the year-on-year increase in the company's profits and increased efforts to collect contract payments. 2) According to the company's 2023 annual report, lithium battery equipment is the main source of revenue:
① Power and energy storage batteries: Revenue of 2,954 billion yuan, +26.51% year-on-year; gross profit margin 30.40%, yoy-2.48pct.
② 3C: Revenue of 152 million yuan, +13.72% YoY; gross profit margin 46.68%, yoy+0.34pct. ③ Automobiles and hardware: revenue of 232 million yuan, -2.04% YoY; gross profit margin 41.94%, yoy-4.51pct.
Gross margin is under pressure, and overall cost ratio control is good. 1) According to the company's 2023 annual report, the company's gross margin and net margin were 32.93%/8.15%, respectively, with a year-on-year change of -3.01/-1.31pct; 23Q4, the company's gross margin and net interest rate were 30.57%/3.51%, respectively, with a year-on-year change of -5.38/-5.07pct, dragging down 23-year results. 2) According to the company's 2023 annual report, the company's sales/management/ R&D/finance expenses rates in 2023 were 4.54%/13.81%/6.87%/-0.36%, with year-on-year changes of +0.26/ -0.37/+0.02/-0.22pct. The overall cost rate of the company is relatively stable and well controlled.
Actively expanding the international market, lithium battery equipment can be expected to go overseas. 1) In 2023, the company's overseas revenue was 327 million yuan, +68.64% year-on-year, with a gross profit margin of 50.60%, yoy+2.15pct. The profitability was significantly higher than the domestic level (domestic gross profit margin of 30.21% in 2023, yoy-3.63pct). 2) The German subsidiary has increased its market development for local European companies and has reached cooperation intentions with many European companies; the Japanese subsidiary is developing well, and the company will strengthen the market capacity and production capacity of the Japanese subsidiary; in 2024, it plans to establish an American subsidiary to quickly respond to the R&D needs of local consumer electronics customers and begin to develop the North American lithium battery equipment market.
There are sufficient orders on hand, and the development of the non-lithium battery business is increasing. According to the company's 2023 annual report, as of the end of 2023, the company's on-hand orders were 4,048 billion yuan (tax included), maintaining the leading market share in the lithium battery equipment industry; at the same time, it increased its market development efforts for the consumer electronics, fuel cell, and sensor industries, and new orders for the non-lithium battery business showed a rapid growth trend. Furthermore, it actively lays out fields such as semiconductors and photovoltaics to cultivate new business growth points.
Profit forecasting and valuation. We expect the company's net profit to be 344/4.22/513 million yuan in 2024/2025/2026, up 20.3%/22.6%/21.5% year-on-year; EPS will be 1.02/1.25/1.51 yuan. Considering that the company is actively developing overseas markets and non-lithium battery businesses, we gave the company a PE valuation of 15-17 times in 2024, with a reasonable value range of 15.23-17.26 yuan/share (the company's EPS is expected to be 1.02 yuan in 2024), corresponding to a reasonable market value of 52-5.9 billion yuan, which is “superior to the market” rating.
Risk warning. Non-lithium battery business expansion falls short of expectations; risk of declining company orders and performance due to reduced production expansion; overseas expansion of lithium battery equipment falls short of expectations; increased industry competition; and repayment risks.