Incidents:
On April 22, 2024, the company released its 2023 annual report and 2024 quarterly report: the company achieved revenue of 1.83 billion yuan in 2023, +59.1% year over year, and realized net profit of 150 million yuan, +94.3% year over year; 2024Q1 achieved revenue of 570 million yuan, +66.8% year over year, and realized net profit of 50 million yuan, +30.2% year over year.
Opinions:
Customer expansion+strong downstream boom drives revenue growth, and effective cost control drives high performance growth. On the revenue side, the company's revenue in 2023 was +59.1% year over year. By business, the new energy core business revenue was +92.7%, mainly due to the company expanding Tier 1 customers such as Jinkang Power and Fudi Power and entering the supply chain of OEMs such as Cyrus, BYD and Geely during the reporting period; EGR business revenue was +97.3% year over year, mainly due to the rapid increase in the penetration rate of hybrid passenger vehicles and natural gas heavy trucks. On the profit side, the company's net profit in 2023 was +94.3% year-on-year, with a gross profit margin of 17.8%, or a lower capacity utilization rate for new energy products (73% and 49% capacity utilization rates for iron core and hybrid EGR, respectively); the period cost ratio was -2.0pct to 9.8% year over year, sales expense rate/management cost rate/R&D cost rate/financial expense ratio -0.1pct/-0.8pct/-0.6pct year-on-year.
2024Q1's net profit to mother was +30.2% year-on-year, with production climbing or driving a month-on-month improvement in gross margin. On the revenue side, the company's 2024Q1 revenue was +66.8% year-on-year, or driven by a strong downstream boom. Among them, 2024Q1 hybrid passenger car/natural gas heavy truck sales volume was +77%/+135% year-on-year.
On the profit side, the company's 2024Q1 net profit was +30.2%, of which gross margin was -2.3 pct year over year, +1.4 pct month-on-month, and capacity utilization rate gradually climbed from month to month; the period cost ratio was -2.1 pct year over year, cost control continued to be optimized, sales cost rate/management cost rate/R&D cost rate/financial cost ratio -0.1 pct/-0.1 pct.
High downstream prosperity is expected to drive the company to maintain high growth. In terms of new energy cores, the company has entered the industry chain of leading car companies such as Tesla, BYD, Geely, and Cyrus, and is expected to fully benefit from the high sales volume of supporting models. In terms of EGR and natural gas injection systems, the penetration rate of hybrid passenger vehicles and heavy natural gas trucks continues to increase. Among them, the company's market share of natural gas injection systems reached 50% in 2023, and the high downstream boom is expected to continue to drive the company to maintain high growth.
Profit forecast and investment rating: The company's downstream businesses such as new energy iron cores, EGR, and natural gas injection systems are expected to maintain a high level of prosperity and are expected to help the company grow. The company's net profit for 2024-2026 is estimated to be 2.43/3.36/410 billion yuan, respectively. The current stock price corresponds to PE 15.5/11.2/9.2 times, which is covered for the first time, giving it a “buy” rating.
Risk warning: macroeconomics fall short of expectations; product targeting falls short of expectations; downstream sentiment declines; upstream raw material prices rise; measurement errors, subject to reality; appropriate management.