Short-term performance is under pressure, or it may be related to the fact that the new energy EPC business revenue was not confirmed as expected

The company's 2023Q1-Q3 revenue was 2.05 billion yuan, down 14.4% year on year, and net profit was 301 million yuan, up 6.8% year on year; of this, Q3 revenue was 730 million yuan, down 28.5% year on year, and net profit was 106 million yuan, down 17.43% year on year. The gross margin for the first three quarters was 57.4%, up 11.4pcts year on year, and net profit margin was 15.0%, up 3.2 pcts year over year. Significant changes in revenue, profit, and gross margin may be related to a sharp decline in new energy EPC business revenue. Considering that the pace of new energy EPC revenue confirmation is slightly lower than expected, we have lowered our previous profit forecast. The net profit for 2023-2025 is 4.21/5.17/652 billion yuan (previous value was 4.89/607/764 million yuan), EPS is 1.25/1.53/1.93 yuan (previous value was 1.45/1.80/2.26 yuan), and the current stock price corresponding to PE is 17.0/13.8/10.9 times. Considering the increase in overseas orders compounded by the downturn of the nuclear power military industry, maintaining a “buy” rating.

The company's main business is developing steadily and is actively expanding safety and engineering intelligence business

In the first three quarters of 2023, the company's main industrial explosion-proof business maintained a steady growth trend, and formed seven major business segments: oil and gas chemicals, marine engineering ships, safety engineering intelligent control platforms, chemical machinery support, food, medicine and alcohol, military, nuclear power, and pyrotechnics intelligence. Since the launch of Safety Engineering's intelligent business in 2019, the products have been promoted in the petroleum and petrochemical sector, mainly by building new production capacity, and will be extended to the stock renewal market in the future. According to the company's announcement, the country has identified a stock of nearly 600 new chemical parks, with a single value of about 20 million yuan, and the market size for installing intelligent businesses in hazardous chemical parks will exceed 10 billion yuan.

The introduction of an equity incentive plan shows confidence in development. The future trend is positive. In September 2023, the company launched the 2023 restricted stock incentive plan. It plans to grant 6.655 million restricted shares to 219 people, accounting for 1.97% of the company's total share capital at the time the draft incentive plan was announced. The equity incentive assesses the company's performance in 2023-2025. The conditions for lifting sales restrictions for the first type of incentive target are that the net profit for 2023 is not less than 389 million yuan, the cumulative net profit for 2023-2024 is not less than 797 million yuan, and the cumulative net profit for 2023-2025 is not less than 1,226 million yuan. The conditions for lifting sales restrictions for the second type of incentive target are that the southwest area of the Safety Engineering Intelligence business has revenue of not less than 10 million yuan in 2023, cumulative revenue of no less than 47 million yuan in 2023-2024, and cumulative revenue of not less than 10 million yuan in 2023-2025.

Risk warning: EPC revenue confirmation falls short of expectations; overseas market expansion falls short of expectations; risk of exchange rate fluctuations.