Description of the event

Xinleaneng released its 2022 annual report and the first quarter of 2023. In 2022, the company's revenue was 1,714 million yuan, up 15.96% year on year; net profit of the mother was 283 million yuan, up 3.29% year on year; net profit after deduction was 265 million yuan, down 2.27% year on year; total debt was 1,271 million yuan, up 3.09% year on year; monetary capital was 633 million yuan, up 169.20% year on year; accounts receivable was 676 million yuan, up 68.80% year on year; inventory was 973 million yuan, up 31.61% year on year. In the first quarter of 2023, the company's revenue was 497 million yuan, up 5.59% year on year; net profit of Fumo was 114 million yuan, up 31.01% year on year; net profit after deduction was 112 million yuan, up 31.22% year on year. Total liabilities amounted to 1,292 million yuan, up 2.53% year on year; monetary capital was 479 million yuan, up 93.22% year on year; accounts receivable amounted to 958 million yuan, up 89.59% year on year; inventory was 974 million yuan, up 25.45% year on year.

Incident reviews

22Q4 was dragged down by the epidemic, and 23Q1 returned to a growth trajectory. In 2022, Q1-Q4 companies achieved revenue of 471/4.15/4.50/377 million yuan respectively, net profit of 0.87/0.98/100/-0.03 billion yuan, and Q4 revenue fell 19.70% year-on-year. The main reason was due to epidemic prevention and control factors in the fourth quarter. The company's production delivery was delayed, and there were short-term fluctuations in performance. Q4 net profit fell 103.51% year-on-year, which is related to the calculation of asset impairment losses of 0.4 billion yuan, which includes loss of goodwill impairment of 0.3 billion yuan. With the return of the pace of production and delivery to the right track in 2023 and the subsequent favorable increase in industry orders, 2023Q1's revenue and net profit returned to new highs and returned to a rapid growth trajectory.

Special fields are growing steadily, development in the communications and networking fields is accelerating, and investment in R&D is increasing to maintain a leading position in technology. In 2022, the company achieved revenue of 998 million yuan in the special sector, an increase of 13.51% over the previous year, the communication and network sector achieved revenue of 651 million yuan, an increase of 19.85% over the previous year, and the company's R&D expenses increased 29.47% to 260 million yuan in 2022. The company's long-term high investment in R&D has accumulated a large number of core technologies, which helps the company maintain its leading position in technology.

A fixed increase was implemented to break the medium- to long-term production capacity bottleneck. The company continues to expand production capacity. At the end of September 2022, construction of the special power supply expansion project, the high-reliability SiP power microsystem product industrialization project, and the R&D center construction project base began. The special power supply expansion project and the high-reliability SiP power microsystem product industrialization project are expected to reach the intended use state in October 24, and the R&D center construction project is expected to reach the scheduled usage state in October 25. The telecommunication and server power supply expansion project at the end of 2022 has completed the construction of two dual-track patch production lines. The production line has now been put into trial production and operation, taking the lead in completing the automated and intelligent production line upgrade. It is expected that it will reach the intended usage state in October 23. As fund-raising projects advance in an orderly manner, the company will break the medium- to long-term production capacity bottlenecks and achieve sustainable development.

Investment advice

The company's 2023-2025 EPS is expected to be 0.91\ 1.27\ 1.89 respectively, the corresponding company's closing price on April 24 is 28.59 yuan, and the 2023-2025 PE is 31.5\ 22.5\ 15.2 respectively, maintaining the “buy-A” rating.

Risk warning

Orders for military goods fell short of expectations; demand for civilian goods fell short of expectations; fund-raising projects fell short of expectations; technology research and development fell short of expectations.