Event: The company released its 2023 three-quarter report. In the first three quarters of 2023, the company achieved revenue of 5.576 billion yuan, an increase of 29.77% over the previous year; realized net profit of 565 million yuan, an increase of 71.51% over the previous year; and realized net profit after deduction of 533 million yuan, an increase of 89.19% over the previous year. Among them, 2023Q3 achieved operating income of 1,924 million yuan, an increase of 15.18% over the previous year; realized net profit of 193 million yuan, an increase of 29.31% over the previous year; and realized net profit of 184 million yuan after deducting non-return to the mother, an increase of 38.86% over the previous year.

The low temperature, medium temperature, and energy-saving heating sectors are progressing hand in hand, and the performance growth rate is steady. According to the company's investor relations activity record table on October 30, 2023Q1-Q3, the company's low temperature and compression equipment sector, medium temperature equipment sector, and energy-saving heating sector reached 3.54 billion, 1.67 billion, and 3.7 billion respectively, accounting for 63%, 30%, and 7%, respectively, and the structure is basically stable compared to the interim report. Looking at a single quarter, 2023Q3 gross margin was 29.15%, up 5.33pct year on year; net profit margin was 10.45%, up 1.06pct year on year; in the first three quarters of 23, the company's gross margin was 26.1%, up 3.4 pct year on year, and all business sectors showed varying degrees of increase. The company's profitability continues to improve, mainly because: 1) the continuous improvement of the product structure, the increase in the proportion of equipment, the decrease in the share of engineering, and the increase in product competitiveness; 2) the company's ability to control expenses is strong. The company's management expenses rate for the first three quarters of 2023 was 4.26%, a decrease of 0.09pct over the previous year; and the sales expenses rate was 8.35%, a decrease of 0.49pct over the previous year. We believe that with the country's in-depth layout and policy support for the “carbon peak” and “carbon neutrality” national policies, combined with the company's continuous penetration into emerging fields, the company's revenue is expected to maintain good growth in the future.

Continuously invest in research and development, and new fields continue to contribute new momentum. The company's R&D efforts continued to increase. The R&D expenditure rate for the first three quarters of 2023 was 3.72%, an increase of 0.6 pct over the previous year. The company focuses on low-carbon energy utilization, distributed energy, industrial thermal management, hydrogen energy equipment and other fields to accelerate breakthroughs in the transformation of the low-carbon energy industry; makes full use of the advantages of integrating energy and power engineering technology systems to accelerate the development and industrialization of key technologies and equipment for low-carbon energy systems. In terms of hydrogen energy, in 2023, the company launched 22MPA, 45MPA, and 90MPA hydrogen diaphragm compressors, and orders for 22&45MPA products have already been placed. Based on years of technology research and development strength and project experience, the company can provide products and supporting services covering the temperature range of -271℃ to 200℃ and the pressure range of 0Mpa-45Mpa, and actively deploy hydrogen energy and CCUS, and continue to explore the applicability of compression heat exchange technology in new industrial scenarios.

Investment suggestions and valuation: The company has been deeply involved in the field of heating and cooling equipment for decades, has a comprehensive business layout, rich project experience, and is actively developing new businesses such as hydrogen compressors and CCUS. We believe that the company's long-term performance is expected to grow well. We expect the company to achieve sales revenue of 81/100.63/12022 billion yuan in 2023-2025, respectively, an increase of 32.7%, 24.2%, and 19.5% over the previous year. Realized net profit was 700/8.27/1,014 million yuan, up 64.5%, 18.1%, and 22.6% year on year. The corresponding PE is 14X/12X/9X respectively, maintaining an investment rating of “increased holdings”.

Risk warning: risk of rising raw material prices, increased market competition, risk of downstream demand falling short of expectations, risk of policy progress falling short of expectations.