Event: Rena Intelligence released its 2022 annual report and the first quarter report of 2023. The company achieved revenue of 650 million yuan in 2022, +22.3% year on year, and net profit of the mother was 201 million yuan, +17.32% year on year. Among them, Q4 achieved revenue of 474 million yuan in a single quarter, +17.55% year on year, and net profit of Guimu was 166 million yuan, +4.16% year on year. 2023Q1 achieved revenue of 34 million yuan, +6.91% year on year, and net profit of the mother was 0.07 million yuan, or -36.67% year on year. The performance is in line with expectations. In the long run, smart heating can achieve a win-win situation for the government, heating companies, and residents. The company benefits from major industry trends. Performance is expected to continue to rise, and valuations are at a safe margin.
Q4 The adjustment of the epidemic prevention policy affects the pace of delivery and acceptance and does not change the long-term positive trend. There is an obvious seasonality in the company's revenue. Generally, projects are implemented after Q2 is shut down, and Q4 centrally confirms revenue, so Q4 has a high annual performance; however, heating has not stopped in the first quarter, and there are few project projects implemented and delivered, which is generally a low performance point for the whole year. Beginning in Q3 '22, due to the impact of the epidemic policy, the company's project implementation, delivery, and acceptance pace were all delayed to a certain extent, so the annual revenue growth rate was less than the order growth rate. The company has sufficient orders in hand. The company's contract debt balance at the end of 2022 was $31 million, and the end of the first quarter of 2023 was $35 million. It is expected that confirmed revenue will be delivered in Q2 one after another, and this year's performance is expected to increase.
Gross profit margins and net interest rates remain high, and profitability is excellent. The company's gross margin in 2022 was 54.77%, -0.3 pct compared to the previous year, and the Q4 quarterly gross profit margin was 54.56%, the same as the previous year. The month-on-month decline was mainly due to differences in engineering projects that confirmed revenue, which was a normal quarterly fluctuation. Due to the flat gross margin, the cost rate rose slightly during the period, and the company's annual net interest rate fell by 1.31pcts, but it still reached a high of 31.03%. The gross margin for 23Q1 was 54.05%, -2.13pcts year on year. Revenue fell due to seasonal factors, which led to an increase in the cost rate. As a result, the net interest rate was 20.17%, year-on-year -4.35 pcts. The year-on-year decline was mainly due to the company's increase in staff size in '22. The total number of employees increased 11% to 689 people, and expenses increased year-on-year.
There was a slight increase in the cost rate during the period. The company increased investment in R&D, and the annual R&D cost rate increased by 1.49 pcts to 8.31%; due to the increase in project and technical management personnel and the implementation of equity incentives, the annual management expenses rate increased by 1.22 pcts to 9.32%; the sales expenses ratio and financial expenses ratio increased by 1.22 pcts to 9.32%; the sales expenses ratio and financial expenses ratio did not change much. The total cost rate for the period was 23.83%, +2.87pcts compared to the previous year.
Other important financial indicators: In terms of cash flow, year-end inspection payments were affected by the economic environment and other factors at the time and were not recovered in a timely manner. As a result, the company's net cash flow from operating activities in '22 dropped a lot. Corresponsively, the company's accounts receivable increased a lot, and inventory also increased to a certain extent. It can be inferred that the cash flow deteriorated temporarily. In the quarterly report, the cash received was four times the revenue, indicating that part of the purchase price was successfully recovered in the first quarter. If the cash inflow from 23Q1 is added back to 22Q4, the cash flow basically matches current revenue.
According to the general trend of smart heating, I am optimistic about the company's long-term development and maintain the “Highly Recommended” rating. Winter heating in the north still has multiple heat losses. The Rena plan can achieve energy savings of 10 to 30%, increase the profitability of thermal power companies, and thereby reduce government subsidies for losses of thermal companies. It is in line with the current “double carbon” emission reduction target, and can achieve a win-win situation for the government, heating companies, and residents, which is an inevitable trend in the development of the industry.
Rena is the first domestic supplier of software, hardware and overall solutions. It has the advantages of full service, fewer disputes, and high efficiency in government bidding, and will benefit from the smart heating industry trend. We expect the company's revenue to be 893/1212/1.58 billion in 23/24/25, +38%/36%/30% year on year, net profit of 2.77/36%/472 million yuan, +38%/32%/28% year on year, corresponding to PE 21/16/12 times. We continue to strongly recommend it.
Risk warning: risk of a sharp rise in raw material prices, risk of bidding falling short of expectations, risk of brain drain.