Incident description

In 2024Q0.1-0.3 billion, Huatong achieved revenue of 0.317 billion yuan, a year-on-year increase of 7.93%; net profit to mother -0.258 billion yuan, compared to -0.193 billion yuan in the same period last year; net profit without return to mother -0.266 billion yuan, or -0.233 billion yuan in the same period last year, and losses increased.

Among them, 2024Q3 achieved revenue of 0.163 billion yuan, an increase of 16.40% year on year; net profit due to mother -0.117 billion yuan, which is basically the same as the same period last year; net profit after deducting non-return to mother -0.108 billion yuan, compared to -0.107 billion yuan for the same period last year (after adjustment).

Incident Reviews

The accelerated promotion of fuel cell vehicles in Q3 led to a 16.4% year-on-year increase in the company's 2024Q3 revenue. The total sales power of fuel cell systems in the 2024Q3 industry was 312.3 MW, an increase of 81.2% over the previous year. The company's revenue growth rate is lower than the risk growth rate in the industry. The reasons are: 1) Major automakers and system manufacturers have increased their resource investment, market competition has intensified, and the company's market share may have decreased. 2024Q3's total fuel cell system sales power market share is 15.7% (27.0% in the same period last year). 2) The fuel cell system is in a period of rapid iteration, and product prices have dropped a lot. As the price of fuel cell systems falls, their application scenarios such as buses and commercial vehicles may usher in a turning point, and the industry is expected to continue to expand.

Gross profit margin declined. 2024Q3's gross sales margin was 17.4%, down 21.95 pct year on year, down 8.03 pct from month to month; it is speculated that on the one hand, fuel cell product prices have declined due to fierce industry competition, and on the other hand, the fuel cell industry has not yet reached the large-scale commercialization stage. The production capacity of the company's fuel cell system phase II project put into operation in 2022 H2 falls short of expectations, and depreciation costs are rigid, resulting in product sales price drops greater than cost reduction. With the scale effect unleashed, the company's gross margin had room to be repaired.

Asset impairment losses, credit impairment losses, and exchange gains drag down profits. 2024Q3 lost 0.023 billion yuan in asset impairment, up 7.83 million yuan year on year; credit impairment loss was 0.051 billion yuan, and loss increased by 9.71 million yuan year on year; fair value change loss was 9.36 million yuan, and loss increased 7.5 million yuan year on year, presumably due to a decrease in confirmed exchange gains.

The 2023Q3 revenue ratio is stable, and the cash flow of companies issuing state subsidies is expected to improve. 2024Q3's revenue ratio was 40.03%, an increase of 2.25pct over the previous year, and was basically stable. On May 21, 2024, the Ministry of Finance announced a total incentive fund of 1.14 billion yuan for the first year of fuel cell vehicle demonstration applications, including 0.304 billion yuan for Shanghai, 0.298 billion yuan for Beijing, 0.238 billion yuan for Henan Province, 0.172 billion yuan for Hebei Province, and 76.87 million yuan for Guangdong Province. It is expected that the company's cash flow will continue to improve after the national supplement funds are distributed to vehicle customers in 2024.

We expect fuel cell vehicle promotion to continue to accelerate. In 2024, the five major model cities will enter the third year of demonstration promotion. It is expected that markets such as Guangdong, where promotion is relatively slow, will speed up their expansion, and promotion volume in Beijing is expected to remain high. Looking ahead, we believe that the company will still benefit from the high growth in the fuel cell industry: 1) 2024Q1-3 fuel cell vehicles account for 83.6% of truck insurance (78.0% in 2023), which means that the economy is gradually being accepted by the market; 2) the installed power of the company's bicycles continues to increase, and product performance continues to improve. In addition, the company set up a subsidiary in Guangdong to explore the Guangdong model urban agglomeration market.

The company's revenue for 2024-2025 is expected to be 0.881 billion yuan and 1.22 billion yuan, respectively, maintaining a “buy” rating.

Risk Alerts

1. Risk of product iteration due to technological upgrades; 2. Risk of inventory impairment and bad accounts receivable.