Event: On March 22, 2024, the company released its 2023 annual report. In '23, we achieved operating income of 3.88 billion yuan, up 1.14% year on year, including domestic sales revenue of 2,871 billion yuan, export revenue of 930 million yuan, up 0.71% year on year; net profit attributable to shareholders of listed companies was 1,024 million yuan, up 1.72% year on year; net profit attributable to shareholders of listed companies after deducting non-recurring profit and loss was 999 million yuan, up 2.47% year on year; and basic earnings per share were 4.55 yuan.

Looking at a single quarter, 23Q4 achieved revenue of 1,008 billion yuan, a year-on-year decrease of 1.1% and an increase of 12.07%; realized net profit of 310 million yuan, a year-on-year decrease of 1.85% and a year-on-month increase of 38.5%; and realized deducted non-net profit of 271 million yuan, a year-on-year decrease of 2.08% and an increase of 23.63%.

Profitability is improved, and expenses are well controlled.

1) Profitability situation. Gross margin and net margin were 38.58%/26.49%, respectively, with year-on-year changes of 0.27pct/-0.11pct, respectively. The gross margin improved compared to '22, and the company's profitability stabilized. Thanks to stable prices of major raw materials and a basic easing in base film supply, compounded by the increase in the efficiency of the company's production line.

2) Expenses, the cost rate for the 23-year period was 8.79%, an increase of 0.96pcts over the previous year. Among them, sales, management, and finance expenses were 1.36%/3.99%/-0.19%, respectively, with year-on-year changes of -0.04pct/-0.31pct/+1.14pcts, respectively. The company continued to invest in R&D. In 23, the company invested 141 million yuan in R&D, and the R&D expenditure rate was 3.64%, an increase of 0.17 pct over the previous year.

The 24-year business plan is progressing steadily.

For 2024, the company will maintain steady revenue growth, strive to control costs and expenses, and further develop global markets such as new energy, rail transit, and power grids while consolidating its traditional market share. The company also proposed three goals: 1) be market-oriented, take R&D as a starting point to ensure that new product promotion takes root; 2) further improve production management and promote lean production; 3) accelerate the improvement of the level of automation, improve product quality, and reduce production costs.

Pay attention to shareholder returns and announce a three-year shareholder return plan.

The company announced a shareholder return plan for the next three years (2024-2026). When the profit for the current year and the cumulative undistributed profit is positive, dividends are distributed in cash. The profit distributed in cash every year is not less than 30% of the distributable profit achieved in the current year. The return plan shows that while the company is committed to growth and development, it attaches importance to providing investors with reasonable return on investment, and pays attention to the stability and continuity of return on investment.

Investment advice: We expect the company's 2024-2026 revenue to be 48.46, 60.37, and 7.512 billion yuan, respectively, with corresponding growth rates of 24.9%, 24.6%, and 24.4%, respectively; net profit to mother will be 12.31, 14.92, and 18.17 billion yuan respectively, corresponding growth rates of 20.2%, 21.2%, and 21.7%, based on the closing price on March 22, and corresponding PE will be 19x, 15x, and 13x. Maintain a “Recommended” rating.

Risk warning: raw material price fluctuation risk; exchange rate fluctuation risk.