Core views:

Performance was in line with expectations, and Q4 impairment accruals affected performance. The company released its 2023 annual report, achieving full-year revenue of 30.75 billion yuan, up 4.8% year on year; realized net profit of 1.62 billion yuan, up 11.08% year on year; realized deducted non-net profit of 1.24 billion yuan, an increase of 44.9% year on year. 23Q4 achieved operating income of 9.79 billion yuan, a year-on-year decrease of 0.95%, and realized deduction of 160 million yuan in non-net profit, a year-on-year decrease of 33%. The company accrued impairment losses of 243 million yuan for the whole year, affecting performance. Overall, the company achieved steady growth in its 23-year performance.

Order growth was impressive, overseas orders made new breakthroughs, and gross margin continued to improve. The company signed new orders of 33.99 billion yuan for the full year of 2023, an increase of 33% over the previous year. Among them, new domestic orders amounted to 19.8 billion yuan, a decrease of 7%. New overseas orders reached 14.18 billion yuan, an increase of 233% over the previous year, and new overseas orders reached a record high. Looking at gross margin by region, the gross margin of domestic business revenue reached 9.44% in 2023, down 0.65 percentage points from the previous year; the gross margin of overseas business reached 16.15%, an increase of 10.6 percentage points over the previous year, mainly due to confirmation of high-margin business such as Shell's LNG project. The company's new orders in this round are mainly concentrated in the Middle East region. With the steady rise in global oil prices in '24, the overall overseas order situation is still optimistic.

R&D expenses have increased steadily, and operating costs have increased slightly. The company spent 1,186 billion yuan on R&D in 2023, an increase of 5.74% over the previous year, and carried out 108 scientific and technological research projects. Operating costs were 27.446 billion yuan, up 2.72% year on year. Among them, material costs increased 13.2% year over year, depreciation and amortization increased 23.7% year on year, and fuel costs increased 4.8% year on year. The company is gradually expanding the global market, and R&D investment is expected to enhance the company's comprehensive turnkey capabilities and open up room for growth.

Investment advice and profit forecast: The industry cycle continues to improve. The company's net profit for 24-26 is expected to reach 20.1/23.9/3.03 billion yuan, an increase of 23.8%/19.0%/26.9% over the previous year. Considering that the company is a domestic leader, the industry is in an upward cycle. Referring to comparable companies, we gave 20xPE in 2024, corresponding to a reasonable value of 9.07 yuan/share, maintaining a “buy” rating.

Risk warning: exchange rate risk; risk of falling oil prices; domestic orders falling short of expectations, etc.