The company's net profit to mother increased 54% year-on-year in 24Q1. The company's 24Q1 revenue was 267 million yuan, +35% year-on-month, and -5% month-on-month; net profit to mother was 0.27 million yuan, +54% year-on-year and -7% month-on-month. The full year of 2023 achieved revenue of 926 million yuan, +27% year over year; achieved net profit of 91 million yuan (performance forecast of 0.86 to 98 million yuan), +74% year over year; benefiting from the recovery of the global automobile market and the continued volume of customer orders, the company's business maintained steady growth. At the same time, the continued release of the new low-wind resistance wheel market reflects the scale effect. Coupled with the drop in raw material prices and a sharp drop in shipping costs, the company's profitability increased rapidly. 24Q1's gross sales margin was 25.77%, +0.34pct year on year; net profit margin to mother was 10.11%, +0.98pct year on year. The cost rate decreased by 0.71 pct year-on-year during the 24Q1 period. Throughout 2023, the company's gross sales margin was 25.49%, +5.93pct year on year, and the net profit margin to mother was 9.83%, +2.69pct year on year.
Traditional center covers have evolved to low wind resistance wheel covers or wheel inserts, and the trend of industry upgrading is obvious. The company's core business is low wind resistance wheel covers, traditional center covers, conventional large wheel covers and wheel inserts (with traditional center covers and conventional large wheel covers). The industry has significant growth potential: 1) Low-wind resistance wheel covers are used for new energy vehicles, increasing the coverage area, reducing wind resistance, and increasing the cruising range by nearly 5%. Model 3, Tang EV, etc. are being deployed one after another. The penetration rate of this product is expected to increase from 16% in 23 to 43% in 25, with a market size of 1.1 billion yuan in 25; assuming a long-term sales space of 20 million NEVs, the product market size is 2.8 billion yuan. The company's products support well-known overseas NEV companies and SAIC passenger car customers, etc., with a market share of 66% in '22, and more project support was achieved as NEV penetration increased in '23. 2) Wheel insert products provide personalized decoration and reduce wind resistance. Wheel inserts are 5-7 per wheel, for fuel vehicles (personalized decoration) and new energy vehicles (reducing wind resistance). The market size is expected to reach 2 billion yuan in 25 years. The average unit price of the company's inserts is about 10 yuan. They are equipped with BYD and the like for quick release, and there is plenty of space.
The Qidong factory obtained land use rights, and the regional layout was continuously optimized. The company has built two domestic factories in Guangzhou and Qingyuan, and orders are saturated. To support nearby services, the company further expanded its layout and signed an agreement to invest more than 300 million yuan in the Qidong High-tech Industrial Development Zone in Nantong City. Through a 24-month construction cycle, the “automobile interior and exterior parts and lightweight automotive materials production project” was built on 50 acres of land. As of January '24, the company has obtained the right to use 50 acres of land and obtained a real estate title certificate.
Risk warning: Customer expansion is not as fast as expected, and capacity expansion is not as fast as expected.
Investment advice: Maintain profit forecasts and maintain a “buy” rating. The company's low wind resistance wheel hub cover volume; DAG enhances overseas customer acquisition capabilities; continues to reduce costs and increase efficiency and marginal improvement in profitability; maintains profit forecasts. Net profit for 24/25/26 is expected to be 135/1.83/217 million yuan, corresponding to EPS of 1.27/1.73/2.05 yuan, giving the company a reasonable valuation range of 27-29 yuan, corresponding to the company's reasonable valuation range of 27-29 yuan, maintaining a “buy” rating.