Incidents:
On April 30, 2024, Wuxi Zhenhua released its 2024 quarterly report: the company achieved operating income of 490 million yuan, a year-on-year increase of 15.95%; realized net profit of 77 million yuan, an increase of 103.54% over the previous year; realized net profit deducted from non-mother of 76 million yuan, an increase of 136.65% over the previous year.
Key points of investment:
Revenue and profit continued to grow in the first quarter of 2024, and profitability further improved. In the first quarter of 2024, the company achieved net profit of 77 million yuan and net profit without deduction of 76 million yuan, an increase of 103.54%/136.65% year-on-year respectively, all higher than the upper limits of the company's previous performance forecasts and slightly exceeded our expectations. In terms of profit level, the company achieved gross profit margin of 25.53% and net profit margin of 15.78% respectively in the first quarter of 2024, an increase of 0.46pct/3.81pct compared with the overall level of 2023. We judge that the company's profitability has increased dramatically, mainly benefiting from the decline in upstream raw material prices, the scale effect brought about by the release of production capacity, and the company's cost reduction efforts. Furthermore, the sharp decline in credit impairment losses due to a decrease in accounts receivable balance at the end of the first quarter of 2024 compared to the end of 2023 also had a positive impact on the company's profits.
The customer structure has been optimized, and the sales ratio of new energy sources continues to increase. On the one hand, the company actively embraces new car builders such as Tesla, Ideal Auto, Xiaomi, Anhui Volkswagen, Dongfeng Rantu, and Zhiji Auto. On the other hand, it actively supports new energy models for old customers such as SAIC Volkswagen, SAIC-GM, and SAIC passenger cars, and grasps the field of traditional energy and new energy vehicle parts in both directions. According to the company's 2023 annual report, the company's new energy sales reached 30% of total sales in 2023, and this ratio is expected to exceed 50% in 2024. We believe that the company's continued expansion of new energy customers will drive the company's revenue to continue to rise.
The profit forecasting and investment rating company is an experienced parts manufacturer. The basic division assembly processing business is tied to the steady development of SAIC passenger cars. The main business of auto parts stamping and welding and related mold businesses benefit from customer expansion and is expected to achieve rapid growth in downstream customer volume. We expect the company to achieve operating income of 29.31, 35.46, and 4.185 billion yuan in 2024-2026, with year-on-year growth rates of 27%, 21%, and 18%; net profit due to mother of 3.67, 4.48, and 523 million yuan, with year-on-year growth rates of 32%, 22%, and 17%; EPS of 1.5, 1.8, and 2.1 yuan, corresponding PE valuations of 14, 12, and 10 times, respectively. We are optimistic about the company's future development and maintain a “gain” rating.
Risk warning 1) Orders from major customers fell short of expectations; 2) New customer development and business volume fell short of expectations; 3) increased competition in the parts industry; 4) risk of large fluctuations in raw material prices; 5) risk of falling demand in the original business due to the application of new technology; 6) passenger car sales fell short of expectations.