Event: The company issued a pre-increase announcement for the 2023 annual results

In 2023, the company's revenue was expected to increase by 11%-21%, and net profit to the mother increased by 389%-512%. The company expects to achieve revenue of 35.5-3.85 billion yuan in 2023, an increase of 11%-21% over the previous year; it is expected to achieve net profit of 200-250 million yuan, an increase of 389%-512% over the previous year. Looking at a single quarter, we estimate that in 2023Q4, the company is expected to achieve revenue of 967-1,267 million yuan, an increase of 11%-46% over the previous year; it is expected to achieve net profit of 0.28-78 million yuan, an increase of 250%-875% over the previous year.

The 2023 performance improved significantly: the low profit point of the company has passed, and the product range continues to expand 1) With the recovery of downstream demand, the company's performance improved significantly in 2023. The year-on-year growth rates of 22Q4-23Q3's revenue were -4%, 12%, 19%, and 2%, respectively, and the year-on-year growth rates of net profit to mother were -89%, 111%, 6834%, and 443%, respectively. The improvement trend is obvious.

2) The company's gross profit margin for the first three quarters of 2023 was 24.8%, up 8.3 pct year on year; net profit margin was 6.9%, up 5.1 pct year on year. We judge that competition in the industry is slowing down, and the price war is expected to gradually pass.

The company will benefit from a recovery in downstream demand and profit recovery in the short term, looking at high-power and high-end sector expansion in the long term 1) According to data from the National Bureau of Statistics, the manufacturing PMI in January was 49.2%, up 0.2 pct from month to month. After three months of continuous decline, it is expected to rise steadily, and lasers as a general manufacturing industry are expected to continue to benefit.

2) According to the China Laser Industry Development Report, medium- and low-power fiber lasers below 6kw have basically been localized in 2021, while the localization rate for high-power products is only about 50%, and there is still room for improvement.

3) The competitive pattern of the domestic fiber laser market is three-legged. IPG, Ruike, and Chuangxin had a market share of 74% in 2021. In the context of the price war, small and medium-sized manufacturers continued to withdraw, and industry concentration is expected to increase further.

4) As an enterprise under the State Assets Administration Commission, the company continues to increase R&D, accounting for 9.7% of R&D investment in 2022, which is higher than 8% of IPG and Chuangxin. In 2022, sales of the company's high-power products increased 128% year on year, with sales of 10,000 watt lasers increasing 35% year on year; in the first half of 2023, the company's 10,000 watt laser sales growth rate further increased to 106%. In the future, high-power, high-end markets and special applications are expected to become a new driving force for the company's development.

Radico Laser: The compound net profit growth rate for the next 3 years is expected to be 141%. The company's net profit to mother is estimated to be 2.3, 3.9, and 570 million yuan in 2023-2025, up 469%, 68%, and 47% year-on-year. CAGR = 141% in 22-25, corresponding PE is 44, 26, and 18 times. Maintain a “buy” rating.

Risk warning

1) The industry price war continues; 2) The expansion of high-power and high-end markets falls short of expectations.