Matters:

The company released the 2023 performance report on the evening of February 23. In 2023, the company achieved operating income of about 786 million yuan, an increase of 16.3% year on year; net profit attributable to shareholders of listed companies was 41.8546 million yuan, a year-on-year decrease of 12.46%; basic earnings per share was 0.31 yuan, a decrease of 13.89% year on year.

Commentary:

Revenue grew steadily, and net profit after deducting non-return to mother doubled. 1) Revenue level: In the face of poor overall prosperity in the environmental monitoring industry, the company continuously improved its ability to innovate independently, continued product iteration and technology development, and consolidated and developed new market share. In 2023, the company's revenue increased 16.3% over the same period last year, and still achieved steady growth. 2) Profit level: The company's profit quality was greatly improved, and net profit after deduction of non-return to mother increased by 122.22% over the same period last year to 23.0722 million yuan.

Government grants/income tax accounting treatment affects profits. Following the amortization of deferred earnings from the previous period, the amount of government subsidies received by the company during the reporting period decreased compared to the same period last year. At the same time, due to the company's high R&D investment, due to the large amount of R&D deductions, the company's taxable income has continued to be negative in recent years. Due to prudential considerations, based on the amount of taxable income likely to be obtained to offset deductible losses in the future period, the company identified deferred income tax assets for part of the amount deductible losses in the current period and recovered deferred income tax assets related to temporary deductible differences in the previous period. As a result, net profit attributable to owners of the parent company decreased by 12.46% compared to the same period last year.

The share buyback is nearing completion. On February 7, 2024, the company has repurchased 5.3682 million shares through centralized bidding transactions, accounting for 4% of the company's total share capital. The highest purchase price was 21.56 yuan/share, the lowest price was 11.16 yuan/share, and the total amount paid was 905.516 million yuan (excluding stamp duty, transaction commissions, etc.), which is close to the company's 100 million yuan repurchase limit.

Investment advice: Maintain a “strong” rating, with a target price of 21.33 yuan in 2024. From 2023 to 2025, we expect the company's net profit to be RMB 42 million, RMB 100 million, and RMB 144 million (previous values were RMB 171 million, RMB 126 million, and RMB 171 million), corresponding to 51 times, 22 times, and 15 times PE, respectively. Using the segmented valuation method, the company's business is divided into traditional environmental monitoring instruments and high-end scientific instruments. The environmental monitoring instrument segment selected the company's main competitor Juguang Technology and Cedilong as comparable companies, giving the 2024 target PE 25 times; the high-end scientific instrument sector selected Dingyang Technology and Puyuan Precision Electric as comparable companies, giving the 2024 target 30 times PE. Assuming that each sector accounts for the same share of net profit as gross profit, the company is given a target price of 21.33 yuan for 2024.

Risk warning: Domestic substitution falls short of expectations, R&D failure, industrialization failure, industry competition intensifies, policy progress falls short of expectations, and heavy dependence on government subsidies and tax incentives.