Event: on April 24, the company released its annual report for 2021, showing that its annual operating income was 254 million yuan, down 8.05% from the same period last year, and its net profit was 26.4443 million yuan, down 57.43% from the same period last year.

On April 26, the company released a report for the first quarter of 2022, saying that the company realized operating income of 68.1909 million yuan, an increase of 57.92% over the same period last year, a net profit of 8.5891 million yuan, an increase of 108.36% over the same period last year, and a net profit of 4.6123 million yuan, an increase of 236.32%.

2022Q1 performance has achieved rapid growth, and the growth rate of UHV fire protection demand has accelerated, and it is expected to continue to enter the volume phase in the future: the company's net profit in the first quarter of 2022 was 8.5891 million yuan, an increase of 108.36% over the same period last year. If the company's share payment fee for implementing the incentive scheme is 3.33 million yuan, the net profit in the first quarter will be 11.9191 million yuan, an increase of 189.14%. The net cash flow generated by the company's Q1 business activities was 34.473 million yuan, an increase of 275.29% over the same period last year. We believe that the company's quarterly performance report to achieve greater growth is mainly due to the product downstream industry to maintain a high demeanor, increasing demand, in the future with the new construction of UHV and the continuous deepening of the fire protection transformation of existing substations, the company's long-term growth is expected. At the same time, the company's business has also expanded to energy storage fire fighting, new energy power generation (wind, photovoltaic) fire fighting, electric bicycle charging station fire fighting, urban public safety and underground integrated pipe corridor fire fighting, etc., and the application scene of the products has been continuously broadened. therefore, it is optimistic about the long-term growth of the company in the future. The rapid growth of the company's performance in the first quarter also confirms the market demand for the company's products.

The construction of "new infrastructure" has strong certainty, which will drive UHV construction into a rapid development cycle in the future, and the demand for fire protection in the transformation of power grid will continue to rise. in the future, the power fire protection business is expected to continue to maintain a rapid growth rate: in 2021, the company achieved revenue of 110 million yuan in the power grid industry, an increase of 52.14% over the same period last year, achieving rapid growth. As one of the seven key investment areas of "new infrastructure", the UHV industry is expected to usher in a rapid construction cycle. during the 14th five-year Plan period, the national network plans to build UHV projects of "24 deliveries and 14 direct lines", involving more than 30,000 km of lines. the converter capacity is 3.4 billion KVA, with a total investment of 380 billion yuan. Among them, the State Grid plans to start construction of 13 UHV lines with "10 AC and 3 DC" in 2022, an increase of 85% compared with the highest seven in previous years.

It shows that the UHV power grid will usher in a new round of construction peak. At the same time, its fire characteristics are also more complex. The transformer fixed automatic fire extinguishing system developed by the company can carry out all-weather, unattended and intelligent fire detection and early warning for key equipment in large transmission and substations through non-contact temperature detection, video imaging, infrared fire imaging and other detection technology. it can be aimed at high-risk environments such as UHV power transmission and transformation stations, petrochemical storage tanks and so on. At the same time, it provides large-flow fixed spray fire extinguishing and visual remote control high-level fire cannon to accurately extinguish the fire, and continue to restrain it, so as to quickly and efficiently extinguish large area high temperature hot oil fire and prevent hot oil reburning. In recent years, the National Energy Administration has successively issued the typical Fire Protection regulations for Electric Power equipment.

"35kV-220kV Urban Underground Substation Design regulations" and other policy standards, the State Grid Corporation has also issued documents such as "notice on carrying out substation fire prevention hidden danger management project carding and reserve" and other documents, the power grid industry has paid more and more attention to fire control work and increased investment in fire protection supporting power facilities. In terms of the transformation of existing lines, according to the company's announcement, more than 60,000 substations across the country are expected to be classified and upgraded step by step. According to the relevant documents issued by the State Grid Corporation, the current implementation strategy is to focus on the protection of the sites involved in the first echelon, followed by the core cities involved in the second echelon, the third is the sites involved in other urban centers, and finally the sites involved in marginal areas. We believe that with the continuous promotion of China's "new infrastructure" construction projects, China's UHV network will continue to improve, thus leading to the continuous improvement of fire protection demand in the industry, the company has rich technical reserves and rich experience in solution solutions. therefore, the performance of fire protection business in the power industry is expected to continue to grow at a high speed in the future.

The importance of energy storage and fire fighting is highlighted, opening the company's growth ceiling: according to the "White Paper on Energy Storage Industry Research 2021" issued by CNESA, it is conservatively estimated that in 2021, the cumulative compound growth rate of electrochemical energy storage will be 57.4%. China's electrochemical energy storage market will officially enter the stage of large-scale development.

At the same time, the rising safety accidents of energy storage power stations have become a major obstacle to the further development of energy storage technology, and the fire safety of energy storage power stations can not be ignored. The relevant state departments have raised the safety of lithium-ion battery energy storage system to a higher level. In order to support the safe, healthy and rapid development of the energy storage industry, the relevant state departments have also issued a number of policies, clearly put forward that the future development of new energy storage must strengthen fire safety management. Under this background, the company's lithium battery energy storage cabinet fire prevention and control and inerting explosion suppression system products use self-developed multi-component mixed fire extinguishing agent, which has better fire extinguishing efficiency, stronger environmental protection, higher performance-to-price ratio, sustainable suppression and inerting explosion suppression, and achieve PACK core level compared with other fire protection products, the company's products can intervene in the occurrence of fire earlier and prevent the expansion of lithium battery thermal control and the explosion of energy storage cabinets. Carry out point-to-point and precise fire fighting. At the same time, the company has signed a "strategic cooperation agreement" with Korea Fire Appliance Manufacturing Institute and Xiamen Xinying Import and Export Co., Ltd. this cooperation will focus on energy storage fire fighting, new energy vehicle lithium battery fire fighting and other fields. in particular, to promote the company's energy storage fire-fighting products with many of South Korea's leading international energy storage battery manufacturers or energy storage integrators, as well as international promotion through the Korean operation platform. Help the company to open up markets at home and abroad, the company's domestic and foreign markets are expected to open up the space for future growth. We believe that the energy storage industry is entering a period of rapid development, and due to factors such as the characteristics of its battery products, fire protection in the industry has also become very important. With the continuous expansion of the energy storage market in the future, it may significantly boost the fire demand in the industry. The company has technical advantages in the field. With the release of the market, the company is expected to continue to benefit from the improvement of overall demand, driving both the company's performance and valuation.

Investment advice: considering that the company continues to enrich downstream application scenarios, extending to the power industry and energy storage industry, it is expected to continue to benefit from the rapid development of the downstream industry in the future. The company has rich technical reserves and high technical barriers, and its performance is expected to be greatly reversed. Therefore, continue to give the "buy" rating, taking into account the landing of overseas energy storage and fire protection cooperation, overseas orders are expected to accelerate. It is estimated that the 2022-2024 net profit is 159 million yuan, 317 million yuan, 493 million yuan respectively, EPS is 1.24,2.47,3.85 yuan, corresponding to PE is 26 times, 13 times, 8 times.

Risk hints: the risk of technology being overtaken or replaced; the risk that R & D fails to meet market demand or fail to achieve expected results; the risk of intensified market competition; the risk of lower-than-expected construction of downstream power and energy storage industries; the risk of performance fluctuations affected by the COVID-19 epidemic; the risk of a decline in the company's net profit in the past two years; statistical errors, forecast parameters, assumptions do not wait for expected risks.