Event: The company released quarterly reports for 2022 and 2023. In 2022, the company achieved operating income of 607 million yuan, an increase of 24.21% over the previous year, and achieved net profit of 67 million yuan, an increase of 6.04% over the previous year; in Q1 2023, the company achieved operating income of 151 million yuan, an increase of 5.23% over the previous year, and achieved net profit of 16 million yuan, an increase of 39.97% over the previous year.

The performance is generally in line with expectations, and expansion results in the upstream new materials sector have already been shown. According to the company's 2022 annual report, the company achieved operating income and net profit of 607 million yuan and 67 million yuan respectively, up 24.21% and 6.04% year-on-year respectively. Among them, revenue from the rail fastener business was 257 million yuan, a year-on-year decrease of 9.82%; the revenue of the electronic component parts business was 158 million yuan, an increase of 38.99% over the previous year; and the plastic and nylon products business revenue was 189 million yuan, an increase of 125.80% over the previous year.

Actively seek cost reduction measures, and digital factories help improve production efficiency. In terms of raw materials, the company insists on “equal quality to price, same price to quality”, compares prices online, actively explores alternative research and development of some raw materials, further strengthens the localization of raw materials, and optimizes process formulations. In 2022, the company implemented the construction of smart factories for rail fasteners and electronic component parts. The software, hardware, and production capacity of various production lines were further increased. The production workshop was rated as the first batch of smart factories (digital workshops) in Zhejiang Province in 2022. According to Easy Interactive, according to the company's preliminary estimates, after implementing the digital workshop, the production efficiency and energy utilization rate of the production line all increased by about 15%, the product development cycle was shortened, and the defective product rate decreased. In 2022, the gross margins of the company's rail fastener business, electronic component parts business, and polymer modified materials business reached 38.28%, 15.92%, and 15.99% respectively, with year-on-year increases of 3.26 pct, 0.20 pct, and 1.85 pct respectively.

R&D investment continues to increase, and new product development is being fully accelerated. In 2022, the company's R&D expenses reached 33 million yuan, and the R&D expenditure rate reached 5.34%, an increase of 1.59 pct over the previous year. In 2022, the company set up research and development projects for more than 30 new products and technologies, including rubber pads for urban rail forks, sliding table boards for urban rail fasteners, damping fasteners for WJ-14 fasteners, heat-resistant rubber seals, etc., and some were successfully developed and supplied. The company (including subsidiaries) applied for 24 new patents, including 9 invention patents; 18 new authorized patents were added, including 3 invention patents and 15 utility model patents. Six company technical standards were added, 51 product drawings were standardized, and 26 technical standards were revised. The company also participated in research on elastic cushions and nylon plastic parts by the Academy of Iron and Steel, and has accumulated a large amount of data and rich experience.

Investment advice: We expect the company to achieve operating revenue of 779 million yuan, 976 million yuan and 1,189 million yuan respectively in 2023-2025, and the net profit returned to the mother was 83 million yuan, 100 million yuan and 117 million yuan respectively, up 25.2%, 19.8% and 16.7% year-on-year. The corresponding EPS is 0.34 yuan, 0.41 yuan, and 0.47 yuan respectively. The PE multiples corresponding to the current stock price are 40X, 34X, and 29X respectively. Considering the growth space in the rail transit industry and the electronic component parts industry where the company is located, and the results of the company's layout in the upstream new materials field, a certain valuation premium is given to maintain the “buy” rating.

Risk warning: risk of railway construction falling short of expectations, risk of urban rail transit construction falling short of expectations, risk of increased market competition, risk of rising raw material prices.