Incident: The company released its 2023 annual report. In 2023, it achieved revenue of 2.115 billion yuan, and realized net profit of 27.09 million yuan, +45.70% year over year; of these, single Q4 achieved revenue of 818 million yuan, +18.43% year over year, and realized net profit to mother of 60.71 million yuan, -16.25% year over year. The performance was in line with expectations.

The company's CNC system revenue increased 26% year on year, which is significantly higher than the growth of the machine tool industry, and continues to promote domestic replacement of high-end CNC systems. The company is a leader in domestic high-end CNC systems. The CNC system and machine tool sector achieved revenue of 892 million yuan in 2023, an increase of 26.22% over the previous year, which is significantly higher than the machine tool industry, showing the company's strong resilience. According to the China Machine Tool Industry Association, the metal cutting machine tool industry achieved revenue of 158.6 billion yuan in 2023, a year-on-year decrease of 7.2%. New orders and in-hand orders for metalworking machine tools decreased by 8.0% and 14.3%, respectively. In 2023, the company's core technology was continuously optimized and improved. The company launched the entire Xinhuazhong 8-type high-end 5-axis CNC system product package and turning/milling composite product package, which was fully upgraded and iterated on 11 key functions to reach the international advanced level; the company was deeply integrated with upstream and downstream enterprises to form the Hubei High-end CNC System Innovation Consortium; and organized 3 rounds of 100-day research with Huagong Laser and Shandong Haomai to catch up with the standards. The company cooperated with companies such as Shandong Haomai, Dongguan Evmi, Wuzhong Machine Tool, Tianshui Starfire, Ningjiang Machine Tool, etc., to jointly develop vertical, horizontal, and gantry five-axis machining centers, and cooperate with companies such as Amx, Huagong Laser, Onke Laser, etc., to jointly develop various types of five-axis machine tools such as five-axis etching machines, five-axis dispensers, and five-axis laser cutting, etc., to provide batch support for key enterprises in the fields of automobiles, parts, and laser processing.

The company's intelligent production line has sufficient orders on hand, and breakthroughs have been made in overseas markets. The company's robots continue to develop in 3C, new energy, home appliances, kitchen and bathroom industries; the intelligent production line focuses on fields such as NEV power battery equipment, intelligent warehousing and logistics. In 2023, the company achieved revenue of 1,118 billion yuan, an increase of 35.53% over the previous year. Among them, the industrial robot itself achieved revenue of 301 million yuan, a year-on-year decrease of 9.76%, and the intelligent production line achieved revenue of 817 million yuan, an increase of 66.26% over the previous year; the company's intelligent production line had sufficient orders in hand, 850 million yuan as of the end of 2023, an increase of 76% over the previous year, and overseas markets received more than 500 million yuan in export orders in 2023. In addition, the company's special equipment business achieved revenue of 63.26 million yuan, a year-on-year decrease of 28.19%; the NEV supporting business achieved revenue of 21.8 million yuan, an increase of 96.28% over the previous year.

The gross margin of the company's CNC system business increased. 1) The gross profit margin in 2023 was 32.92%, down 1.14pp year on year. Among them, the gross profit margin of the CNC system and machine tool business was 38.65%, up 2.76pp year on year; the gross profit margin in the field of industrial robots and intelligent production lines was 26.88%, down 2.05pp year on year. 2) The cost ratio for the 2023 period was 33.34%, down 2.31pp. Among them, sales/management/ R&D/finance expenses ratios were -0.95pp/ -1.18pp/ -0.07pp/-0.11pp, respectively. 3) Net profit margin of 1.10% in 2023, up 0.75pp year over year.

Profit forecasting and investment advice. The company's net profit for 2024-2026 is expected to be 0.93/147/234 million yuan, respectively, and revenue is expected to maintain a compound growth rate of 24% over the next three years. Considering that the company will fully benefit from the growth of the high-end CNC system import substitution market, there is plenty of room for future growth and maintain a “holding” rating.

Risk warning: risk of macroeconomic fluctuations; increased risk of industry competition; risk of technology research and development falling short of expectations.