Event Overview: On April 26, 2023, the company released the 2022 annual report and the first quarter report of 2023. In 2022, the company achieved revenue of 387 million yuan, a year-on-year decrease of 13.92%, a year-on-year net profit of 70.35 million yuan, a year-on-year decrease of 32.97%, and net profit of non-return mothers was 62.16 million yuan, a year-on-year decrease of 12.43%. The first quarter of 2023 achieved operating income of 94.3 million yuan, an increase of 53.83% over the previous year, achieved net profit of 9.33 million yuan, an increase of 374.60% over the previous year, and achieved net profit of 7.83 million yuan after deducting non-return mother's net profit of 7.83 million yuan, an increase of 1061.13% over the previous year.

Revenue came under short-term pressure in '22, and an increase in the share of exports led to a sharp increase in gross margin.

By product, the company's industrial IoT communication products achieved revenue of 227 million yuan in '22, an increase of 4.13% over the previous year. A number of new products were released and mass-produced during the reporting period, driving steady growth in product revenue. The smart distribution grid achieved operating revenue of 80.38 million yuan, a decrease of 18.58% over the previous year; the intelligent sales control system achieved revenue of 58.18 million yuan, a decrease of 20.32% over the previous year. Delivery of some orders was delayed due to uncontrollable factors such as the epidemic.

By region, domestic revenue in '22 was 243 million yuan, a year-on-year decrease of 18.32%, and overseas revenue was 141 million yuan, a year-on-year decrease of 4.41%. Excluding the influence of Yisuo's smart listing, overseas revenue increased 28.88% year on year, mainly from sales of industrial IoT communication products. The gross margin of export sales was 58.64%, and the gross margin of domestic sales was 42.23%. In 21-22, the share of export sales increased from 33% to 37%, which led to an increase in gross margin from 45.40% to 48.26%.

Looking at the sales model by sales model, the company increased its investment in channel sales, and the distribution share increased from 21% to 36%.

High investment in continuous research and development, and product strength has been well received by the industry.

In 2022, the company invested 55.48 million yuan in R&D, an increase of 12.92% over the previous year. Various product lines have launched a series of new products and solutions for the commercial, industrial energy and vehicle transportation industries, including the ER605 edge router, the VT200 simple vehicle tracking gateway, the new high-performance vehicle gateway VG800 series, the VT100OBD interface vehicle tracking gateway, etc., which can cover a wider range of application scenarios. The company's IG502 edge computing gateway product received an honorable nomination (Honorable Nomination) at the 35th “Engineers' ChoiceAwards (Engineers' Choice Awards)” awards in the US industrial control industry and was selected for the “Maker Beijing 2022” TOP150 project; the enhanced industrial edge computing gateway IG902, a high-reliability unmanaged industrial Ethernet switch ISE1008D, and a high-precision transient recording waveform fault indicator were jointly issued by six departments in Beijing “Beijing New” Technology New Product (Service) Certificate”.

The inflection point of performance in '23 is already here, and investment continues to increase without fear of overseas recession.

In the first quarter of 2023, the company's overall revenue growth was far above the 20% equity incentive target. We believe the main reasons were: 1) the confirmation of power grid and retail orders was delayed, and downstream demand picked up; 2) demand for the industrial Internet of Things continued to rise, especially the continued release of new products such as edge computing gateways. On March 16, '23, the company increased the capital of its subsidiary, Yinghantong of the United States, by 8.5 million US dollars, reflecting its firm confidence in overseas expansion.

Investment advice: We are optimistic that the company's overseas revenue continues to grow, the company's product strength continues to increase, and the profit forecast is raised. We expect the company's net profit to the mother in 2023-2025 to be 1.11/165/222 million yuan respectively, and the corresponding PE multiplier is 31x/21x/16x. Maintain a “Recommended” rating.

Risk warning: R&D results fall short of expectations; overseas business falls short of expectations.