The clean energy sector supported the company's overall growth in 2023, and the dividend payout ratio increased. Enric's 2023 core profit increased 4.4% year over year to 1.28 billion yuan (RMB, same below), higher than our/market expectations of 5/ 8%. However, the overall gross profit was 3% lower than our expectations, mainly because the revenue/gross margin of the chemical sector was 13% /2.2 percentage points lower than our expectations, while the gross margin of liquid food was also about 3 percentage points lower than our expectations. The clean energy sector supported the company's overall growth, with revenue/gross profit surging by 41%/44% respectively (higher than our expectations of 13%/15%), offsetting part of the impact of the other two sectors falling short of expectations. Sales of hydrogen energy products continued to rise, and revenue increased 59% to 700 million yuan in 2023, in line with expectations. The company raised its final interest rate by 25% year on year, and the annual dividend ratio increased to 49% from 41% in 2022.

Offshore clean energy products support the growth of the sector, and revenue from the chemical sector needs to be stabilized. We expect the clean energy sector to remain in a relatively rapid growth period (2023-26 revenue growth of 19%). Among them, on-hand orders for offshore clean energy will still increase 1.1 times year over year, and overall on-hand orders will increase 54% year over year to 16.6 billion yuan, which is enough to cover 90% of our predicted revenue for 2024. The gross margin of the 2024 sector is expected to be roughly flat year on year. In the hydrogen energy sector, management expects revenue to increase by 42% year on year to around 1 billion yuan in 2024, which is about double the increase compared to last year's guidelines and become conservative. We believe that part of the revenue should be distributed to joint ventures. As for last year's revenue in the chemical sector, which fell 16% year on year under the 2022 high base, we believe that the revenue side of this sector will still drop slightly by ~ 4% in 2024. Currently, the company's active orders in the chemical sector were only 1.1 billion yuan at the end of 2023, which is the valley of the past two years. Although the company can complete orders from order receipt to delivery within 1 month, we currently have no definite signs of a rebound in the sector's revenue.

Profit will continue to grow at a compound rate of 11% over the next 3 years, and there is still room for improvement in valuation. We have fine-tuned our 2024/25 earnings per share forecast of -0.1%/+0.9% to reflect more conservative gross profit margins for chemical/liquid foods and slightly slower revenue expectations for hydrogen products. The company's profit compound is currently forecast to grow by about 11% over the next 3 years. We are once again using the price-earnings ratio of 12.3 times 2024 as the company's valuation benchmark (average for the past 5 years), because the historical average over the past two years is sufficient to reflect the company's agreed valuation in the face of the rapid growth of the hydrogen energy sector. We have re-set the target price to HK$9.04 (previous value was HK$9.82) to maintain the purchase. Currently, we believe that the company's profit still depends on the growth of the clean energy sector. The catalyst is expected to stabilize revenue in the chemical sector or progress in new products/cooperation projects in the hydrogen energy sector during the year.