FAW Liberation: Net profit in the first quarter fell by 70% year-on-year Chairman Hu Hanjie's prediction came true?

Reporter 丨 Xiaomin Trainee 丨 Tu Ling

Produced by 丨aotou finance (theSankei)

FAW Jiefang (000800. Hu Hanjie, chairman of SZ), has predicted that it will be difficult to achieve profitability by new car sales alone in 2022.

Sure enough, in the first quarter of 2022, FAW Jiefang's net profit reached 452 million yuan, a year-on-year decrease of 74.71%; cumulative sales reached 66,783 units, down 65.05% year-on-year.

In contrast, in 2021, FAW Jiefang's net profit increased by 45.97% in the case of a 7.23% decline in sales.

What's behind this strange phenomenon?

Product quality assurance fees were reduced by 639 million

On December 29, 2021, faw Jiefang 2022 Business Annual Conference was held in Changchun, and members of the company's leadership team, as well as Jiefang dealers, service providers, spare parts dealers, and special vehicle companies from all over the country attended the meeting.

At the meeting, Hu Hanjie, assistant general manager of China FAW, chairman of FAW Jiefang and secretary of the party committee, said in his speech that 2022 will be a critical period for the adjustment and transformation of the commercial vehicle industry. In the new situation, Liberation will face three challenges: new demands, new customer trends and new competitive situations.

Hu Hanjie analyzed: "In 2022, it will be more difficult to achieve profitability by new car sales alone, and we need to quickly change our business thinking, expand the aftermarket, and deploy it in a position equal to or even more important than sales." ”

It is difficult to make a profit by relying on new car sales alone, and Hu Hanjie's words may mean that FAW Liberation will fall into profitability. And he spoke to dealers, which may also mean that dealers cannot make a profit by sales alone.

But no matter what kind Hu Hanjie specifically refers to, dealers cannot make a profit, and the operating performance of FAW Jiefang is naturally not much better.

In 2021, FAW Jiefang's overall sales reached 439,700 units, down 7.23% year-on-year.

Among them, FAW Jiefang heavy trucks sold 346,500 units, down 7.83% year-on-year; medium-sized trucks sold 26,900 units, an increase of 45.06% year-on-year; light trucks sold 65,300 units, down 16.75% year-on-year; and bus sales of 905 units, down 6.7% year-on-year.

The corresponding performance is that FAW Jiefang achieved operating income of 98.751 billion yuan in 2021, down 13.13% year-on-year; net profit of 3.9 billion yuan, an increase of 45.97% year-on-year.

Faw Jiefang's revenue decline was consistent with the decline in sales, in which case the company's net profit increased by nearly 46%, which made the outside world shine.

In the annual report, in terms of open source and cost reduction, FAW Jiefang said that the company carried out lean management of expenses, strengthened the rigidity of financial performance appraisal, strictly controlled the occurrence of unreasonable expenses, comprehensively established a cost baseline to complete the construction of more than 160 categories of baselines, and has built nearly 900 expense baselines, effectively promoting the improvement of operating quality.

Aotou Finance found that in 2021, FAW Jiefang's sales expenses reached 1.754 billion yuan, down 33.9% year-on-year; management expenses reached 2.454 billion yuan, down 9.68% year-on-year.

Compared with 2020, FAW Jiefang saved about 1.16 billion yuan compared with these two expenses alone, becoming the most critical factor in the growth of net profit of 1.259 billion yuan.

Specifically, among the sales expenses of FAW Jiefang, the product quality assurance fee fell from 1.158 billion yuan in 2020 to 519 million yuan in 2021, a sharp decline of about 55%, a net decrease of about 639 million yuan; the advertising expenses fell from 112 million yuan to 39.9153 million yuan, a sharp decline of about 64%, a net decrease of about 72 million yuan.

According to FAW Jiefang's 2021 annual audit report, as of December 31, 2021, FAW Jiefang had accrued a product quality guarantee fee (that is, a "product quality assurance fee") of 519 million yuan this year, and the balance of the product quality margin in the expected liabilities was 1.213 billion yuan.

As of December 31, 2020, FAW Jiefang expects the balance of product quality margin in liabilities to be 1.402 billion yuan.

According to the automobile sales contract and the relevant national laws and regulations, customers can obtain free warranty services provided by FAW Jiefang during the warranty period. The management of FAW Jiefang calculates the product quality assurance fee in accordance with the relevant provisions of the product type, warranty period and warranty obligation clause.

To put it simply, the product quality deposit is used for the free warranty service in the later stage, FAW Liberation may be out of belief in the quality of its own products, or perhaps it feels that the balance is more sufficient, greatly reducing this matter, "saving" 639 million yuan accounted for half of the net profit growth, played a role in "adjusting profits".

Or face the embarrassment of "no car to build"

FAW Jiefang's performance is also linked to the incentives of employees.

Aotou Finance found that in November 2020, FAW Jiefang released a restricted stock incentive plan (draft) showing that the first lifting of the restriction period includes four goals, namely: 1. The weighted average return on net assets in 2021 is not less than 11.40%, and not lower than the 75th quantification level of the benchmark enterprise; 2. The net profit growth rate in 2021 is not less than 22% compared with 2019, and it is not lower than the 75th quantification level of the benchmarking enterprise; 3. In 2021, the company's economic added value is not less than 2.728 billion yuan; 4. In 2021, the company's domestic market share of medium and heavy-duty trucks is not less than 23.5%.

According to the 2021 annual report, FAW Jiefang achieved sales of 373,400 medium and heavy-duty trucks in the whole year, with a market share of 23.7%, an increase of 1.5 percentage points year-on-year, and completed the target 4.

In 2019, FAW Jiefang's net profit reached 1.987 billion yuan, and the company will almost complete the target at a doubling rate in 20212.

In 2021, FAW Jiefang's weighted average return on net assets reached 15.37%, a significant increase of 4.62 percentage points over the previous year's 10.75%, and it also achieved the target 1 excellently.

FAW Jiefang saved about 1.16 billion yuan in sales and management expenses in 2021, which strongly supported the company's return on net assets and also completed the standard of Target 3.

However, under the continuous decline in sales, the seemingly high net profit pressed the pause button in the first quarter of 2022.

In the first quarter of 2022, FAW Jiefang's operating income reached 15.156 billion yuan, a year-on-year decrease of 66.39% and net profit reached 452 million yuan, a year-on-year decrease of 74.71%.

In the same period, FAW Jiefang's cumulative sales reached 66,783 vehicles, down 65.05% year-on-year. Among them, the company's heavy truck sales reached 54,700 units, down 67.2% year-on-year; medium-sized truck sales reached 6887 units, an increase of 72.82%; light truck sales reached 5179 units, down 74.38% year-on-year.

Although the sales of FAW Jiefang mid-size trucks increased significantly, the base was too low, and other models have fallen sharply, making the company's overall sales plummet.

Affected by the epidemic in Changchun, since April 15, FAW Jiefang has successively returned to work and stationed in the factory, strictly implemented various epidemic prevention regulations, and implemented closed management.

On May 2, as most of FAW Jiefang's employees began to commute "point-to-point", FAW Jiefang Changchun Base resumed production during the "May Day" holiday.

However, under the downturn in sales, FAW Jiefang has delayed production due to the epidemic, and the impact on the company is difficult to quantify.

One thing to note is that in the 2021 annual report, FAW Jiefang introduced that the existing design vehicle production capacity of the company's main plants reached nearly 350,000 vehicles.

FAW Jiefang said that it intends to relocate and upgrade the Chengdu plant to improve the level of manufacturing process technology to meet the rapid growth demand of the western market, and the project is scheduled to be put into operation in 2022 with a production capacity of 40,000 vehicles per year; the Qingdao new energy light truck base project under construction, the project is planned to be put into operation in 2022, with a production capacity of 100,000 vehicles per year to meet the company's rapid growth of light vehicle business needs; the new energy base project in the south is under construction, focusing on building a new energy production base featuring a hydrogen energy industry cluster. Support the rapid development of the company's new energy business, with a production capacity of 10,000 vehicles per year.