Incident Overview: On February 26, the company released its 2023 performance report. In 2023, the company achieved operating income of 576 million yuan, a year-on-year decrease of 27.03%; net profit to mother was 101 million yuan, a year-on-year decrease of 11.97%; net profit after deducting non-return to mother was 94 million yuan, a year-on-year decrease of 12.15%. In 4Q23, the company achieved operating income of 225 million yuan, a year-on-year decrease of 24.50%; net profit to mother of 78 million yuan, an increase of 74.03% over the previous year; net profit after deduction of 72 million yuan, an increase of 63.36% over the previous year.

The one-time addition confirmed an increase in profits, and the application in the industrial sector is worth looking forward to: In 2023, due to factors such as the market environment and local financial pressure, the bidding process for new projects was delayed, leading to a decline in the company's revenue. At the same time, the accounts receivable repayment cycle was extended, and some accounts receivable were overdue, and bad debts were accrued, which had an impact on the company's performance. In the fourth quarter, the company's performance improved significantly year-on-year, mainly benefiting from the one-time confirmation of additional revenue of 143 million yuan from the Laogang Project. The company is vigorously developing integrated dehydration and drying equipment application scenarios. It has now been applied in the lithium battery cathode material industry. It has the advantages of short process, low temperature, closed negative pressure, etc., to ensure the quality of treated materials and has a good competitive advantage.

The layout of energy saving and carbon reduction is expected to contribute to performance growth points: The high-temperature hot water source heat pump technology and equipment developed by the company can absorb the heat displayed from the sewage plant, efficiently utilize low-grade waste heat from the sewage plant, achieve 85℃ high temperature water supply, and promote sewage recycling and energy conversion. In the Hongqiao Sewage Treatment Plant application, the equipment can save about 75% of natural gas consumption, reduce energy costs by about 30%, and effectively achieve energy saving, carbon reduction and economy. It is expected to achieve comprehensive utilization of heat energy in industrial fields with high temperature waste heat in the future, and has broad application prospects. In December 2023, the company signed a strategic cooperation agreement with Shanghai Urban Investment Water Development to clarify the R&D path for green and low-carbon equipment and services, and accelerate technological innovation and transformation of achievements in the field of green, low-carbon and high-end equipment. The energy-saving and low-carbon layout is expected to bring new growth points to the company's performance.

Investment suggestions: One-time supplementary revenue was confirmed in the fourth quarter, and performance improvements were obvious; industrial application scenarios continued to be developed, and core equipment had a good competitive advantage; actively laying out the field of energy saving and carbon reduction. The application prospects for high-temperature water source heat pump technology are broad, which is expected to contribute new profit growth points. Affected by the Laogang operation project and its one-time supplement, the operating income and net profit base for 2022 and 2023 are high. Based on the company's operating conditions, the company's profit forecast is estimated to be 0.69/0.52/0.69 yuan/share for 23/24/25 (previous value 0.28/0.67/0.87 yuan/share), corresponding to the closing price PE on February 26, 2024, which is 16/21/16 times, respectively. Considering that the company's core equipment is still in its early stages of application in the industrial field and has good growth potential, it was given 24.0 times PE in 2024, with a target price of 12.48 yuan/share, maintaining a “careful recommendation” rating.

Risk warning: industry policy risks; fluctuating raw material prices; increased industry competition.