The 2022 performance slightly exceeded expectations, and 2023 is expected to continue to benefit from the high level of industry sentiment. The company achieved revenue of 650 million yuan in 2022, an increase of 22%; achieved net profit of 200 million yuan, an increase of 17%; net profit returned to the mother after deduction increased by 16%. The growth rate of net profit returned to the mother before and after deduction was at the upper end of the previous performance advance growth range (8%-17%/6%-16% respectively), slightly exceeding expectations. Q4 is the period during which the company concentrated on confirming revenue performance during the year. Although project delivery and acceptance work were delayed due to the impact of the general environment, the company achieved steady growth in revenue and profit throughout the year, demonstrating the resilience of leading operations. Among them, the quarterly revenue/performance of 2022/Q4 was 47/ 170 million yuan respectively (accounting for 73%/83% of the whole year), an increase of 18%/4% over the same period. By business, ultrasonic heat meters/intelligent modular heat exchangers/intelligent IoT balance valves/heating and energy saving system projects, which account for a relatively high revenue share, achieved revenue of 0.7/1.3/0.8/260 million yuan respectively, a year-on-year change of -1%/+17%/+101%/+75%. The growth rate of intelligent IoT balance valves and the expansion trend of heating and energy saving system projects are remarkable. 2023Q1 achieved revenue of 34 million yuan, an increase of 7% over the same period; achieved net profit of 6.77 million yuan, a decrease of 36%, mainly due to the confirmation of more government subsidies in the same period last year (10.16 million yuan); achieved net profit of 12.64 million yuan after deduction, with a loss of 2.69 million yuan in the same period last year. Q1 operating performance was good. Recently, the National Energy Administration issued “Certain Opinions on Accelerating the Digital and Intelligent Development of Energy”, which proposes to help coal-fired power generation and carbon reduction transformation, flexibility transformation, and heating transformation “three changes linked”. In addition, more urban pipeline network renovations began in 2022. 2023 entered the heating and energy saving equipment procurement period one after another. Demand in the heating and energy saving industry is expected to continue to be strong. Order signing in 2023 is expected to continue the rapid growth trend, driving the rapid growth in revenue and performance.

Gross margin has been stable and high, fee rates have increased, and cash receipts have been delayed. The company's gross profit margin in 2022 was 54.8%, which was basically the same as the previous year, and profitability was stable. The cost rate for the period was 23.8%, YOY+2.9 pct. Among them, the sales/management/R&D/financial expense ratio changed +0.1/+1.2/+1.5/+0.1 pct respectively. The increase in the management cost ratio was mainly due to an increase in project volume and technical management personnel, while at the same time, an increase in share payment expenses; the increase in the R&D expenses rate was mainly due to the company's continued emphasis on R&D and an increase in R&D personnel. Asset impairment losses (including credit) were $25 million, the same as the previous year. The income tax rate was 14.0%, a slight decrease of 0.2 pct. Return to the mother's net interest rate of 31.0%, YOY-1.3 pct. The company's net operating cash flow outflow in 2022 was 112 million yuan, compared to a net inflow of 83 million yuan last year. It was mainly affected by the general environment. The year-end inspection payments were not recovered in a timely manner, but this portion of the funds was partially recovered in 2023Q1 (Q1 operating cash flow inflow of 150 million yuan). The gross profit margin of 2023Q1 company was 54.1%, YoY 2.1 pct, and the overall level remained high. The fee rate for the period was 117%, YOY+25 PCT. Q1 revenue was low, there were many rigid expenses, and the fee rate fluctuated greatly. Return to the mother's net interest rate is 20.2%, YoY -13.9%. Net operating cash outflow in 2023Q1 was 51 million yuan, a year-on-year narrower of 102 million yuan.

A leader in the heating and energy saving industry continues to create new growth momentum for AI products. The company is one of the few integrated heating management system production and development enterprises in China. It has independent core technology for automation (OT) +information technology (IT) +intelligence (AI), and has outstanding technical strength. In recent years, the company has achieved a leap from tens of millions of individual orders to hundreds of millions, and its position in the industry continues to stand out. Currently, the company is focusing on increasing AI technology research and development. It has successively made breakthroughs in R&D and application of advanced technologies such as big data, artificial intelligence algorithms, and edge computing control, and has obtained 10 artificial intelligence technology invention patents. Among them, the STORM AI intelligent controller incorporates self-developed artificial intelligence algorithms for heating to achieve local algorithm control in heat exchange stations and buildings, improve control frequency and real-time performance, and achieve more detailed regulation and energy saving effects. In the future, with the continuous development of AI technology, the company's AI products are expected to accelerate development and promotion, creating new momentum for growth.

Investment advice: We expect the company to achieve net profit of 30/41/540 million yuan respectively in 2023-2025, up 51%/34%/32% year on year (2022-2025 CAGR is 39%), EPS is 4.08/5.48/7.24 yuan respectively, and the current stock price corresponding to PE is 21/15/12 times respectively, maintaining the “buy” rating.

Risk warning: policy promotion falls short of expected risks, order signing and conversion falls short of expected risks, new products and new regional business promotion falls short of expected risks, etc.