The bottom of the 2023 results recovered, and the 24Q1 results slightly exceeded expectations

The company announced its 23-year & 24Q1 results: revenue for '23 reached 56.1 billion yuan (yoy +21%), net profit to mother of 901 million yuan (yoy +1297%), net profit of 450 million yuan after deducting non-return net profit of 450 million yuan, turning a loss into a profit. 24Q1 revenue was 12.87 billion yuan (yoy -14%), and net profit to mother was 260 million yuan (yoy -14%), slightly exceeding our expectations (estimated upper limit of 250 million yuan). We expect EPS of 0.18/0.25/0.34 yuan for 24/25/26, respectively. According to Wind's unanimous expectations, the average 24E PE value of comparable companies is 16x. Considering that the company ranks first in domestic commercial vehicles and is expected to release performance elasticity as the industry improves in 24-25 years, we gave the company 18 times PE in 24 years, with a target price of 3.24 yuan, maintaining the purchase rating.

The recovery in commercial vehicle sales combined with cost reduction and efficiency of the entire internal value chain. Profits gradually improved in 23, and the company's performance came out from the bottom. 2023/24Q1 gross margin was 11.38%/11.62%, deducted from 0.8%/1.61%, mainly due to: (1) commercial vehicle sales recovery: Foton commercial vehicle sales yoy +37% to 631 million units in 23 (including Foton Daimler), with a share of yoy+1.7pct. It broke through the southern market in China, with a sales volume of +5%. rate yoy+4.1pct It reached 14%, while exports reached a record high, yoy +49% to 131,000 units, making it the number one commercial vehicle export in China; (2) joint venture profits reversed losses and achieved 0.84 billion yuan in 23/24Q1; (3) cost reduction and efficiency of the entire value chain promoted, gross margin remained flat year-on-year in 23, and gross margin yoy+0.6 pct in 24Q1. The company's total non-recurring profit in '23 was +19% to 458 million yuan, mainly due to the company's disposal of some machinery and equipment at the Miyun factory and the transfer of shares in Zhiyue Engine.

Benefiting from industry recovery, releasing scale effects+export expansion+high-end promotion, we believe that the company's performance highlights are: (1) The medium and heavy truck business contributed 12% of the company's revenue in 23 years, and the gross margin improved significantly in '23, yoy+7.6pct. We think it mainly benefited from the company's good export trend, smooth implementation of high-end technology, smooth development of the southern market, and sales recovery to release scale effects. The good downstream trend also drove upstream engines. Engine revenue in '23 yoy +182%, gross margin yoy+2.9pct 3.6% (2) The export performance was outstanding, with export revenue yoy +6%, gross margin yoy+3.81 pct to 16.72%, and the company's commercial vehicle export share yoy+1.9pct to 17%. We believe that thanks to remarkable product restructuring results and obvious advantages in markets such as Eastern Europe/America/Southeast Asia/West Asia, the company continues to operate locally to maintain its competitive advantage.

Accelerated promotion of new products+in-depth deployment of new energy sources, and sufficient growth momentum. We believe that the company's growth momentum will be sufficient in the future: (1) The recovery in the light truck and heavy truck market continues, and the company's export and high-end trends remain unchanged, which is expected to improve profits (Foton Daimler sold 74,000 units of medium and heavy trucks in '23, +38% over the same period last year). At the same time, the company has sufficient reserves of new products, waiting to be released. (2) The company's new energy first strategy accelerated. The R&D rate for 23/24Q1 was 3.7%/4.3% (yoy+0.28pct/yoy+1.44pct), covering all pure electric/hybrid/hydrogen fuel technology routes and commercial vehicle products. In '23, NEV sales exceeded 40,000 units, yoy +84%. We are optimistic that the company's strong NEV layout will help seize market opportunities.

Risk warning: commercial vehicle sales fell short of expectations; material price increases exceeded expectations; prices fell short of expectations.