Incident: The company released its 2023 annual report. For the full year of '23, the company achieved revenue of 440 million yuan, yoy +30.9%; net profit to mother of 110 million yuan, yoy +13.8%. 23Q4 achieved revenue of 130 million yuan in a single quarter, yoy +12.1%; net profit to mother was 0.3 billion yuan, yoy -5.5%. The results were generally in line with expectations.

The performance was in line with expectations, and profits were affected by share payments. The company's annual performance was basically in line with expectations, and the growth rate was basically the same as in '22. The decline in profit growth was mainly affected by share payment fees. After adding about 10 million share payment fees, the profit growth rate returned to 24.5%, which matched the increase in revenue. Looking ahead to 24, the company maintained a high performance growth rate against the backdrop of intelligent investment in coal falling short of expectations in 23. With the gradual recovery of coal and the upgrading of new productivity equipment in '24, the performance is expected to rise to another level.

More industry segments have blossomed, and gross profit expenses have remained stable. Looking at industry segments, all subsector industries have maintained a high growth rate. In 23, the company achieved revenue of 180 million yuan, yoy +20.9%; industrial internet revenue of 96.701 million yuan, yoy +79.5%; smart transportation revenue of 772.21 million yuan, yoy +69.6%; smart city revenue of 51.455 million yuan, yoy +49.3%. Among them, the company's new product line solution business achieved revenue of 64.736 million yuan, accounting for 14.7% of total revenue. On the profit margin side, the company's comprehensive gross margin in '23 was 56.9%, -1.3pp year on year; net interest rate was 24.9%, -3.6pp year on year; net interest rate after stock payment was 27.2%, -1.2pp year on year. The profit margin remained stable, and the slight decline was mainly due to the lower gross margin of the solution business. On the cost side, the company's four-item comprehensive expense ratio was 34.3%, -2.6pp. The fee rate was still declining steadily after adding share payments, reflecting the company's strong ability to control expenses. The cost reduction was mainly due to the decline in R&D and sales expenses.

Focus on marginal changes brought about by new quality productivity. (1) New productivity+industrial AI: The company actively embraces equipment renewal opportunities brought by new quality productivity and is increasing its layout in the fields of TSN, AI, machine vision, and Starlight. In '23, the company improved the AI business platform and launched the edge AI development tool “Sanwang AIKit”. Ongoing projects include TSN, Wifi6, edge AI applications for NVIDIA/domestic computing power platforms, and machine vision capability expansion. (2) Overseas expansion: In '23, the company increased its overseas marketing efforts. In '23, the company exhibited and laid out channels in Japan, Italy, Vietnam, Dubai, the United States, Germany, etc., and sales of products grew rapidly in Europe, America and Asia. Overseas revenue of 46.675 million yuan was achieved in '23, yoy +20.5%. (3) New applications in new fields: In addition to the existing advantages of mining, cities, industrial companies, etc., the company has a good market selection in the field of energy storage and is in the first tier; new industrial communication products have been delivered in batches in the field of low-speed driverless driving and unmanned buses; and intelligent integrated applications have been launched in the highway digitization scenario.

Profit forecasting and investment advice. EPS is expected to be 2.13, 2.97, and 4.20 yuan respectively in 2024-2026, and the corresponding dynamic PE will be 19 times, 14 times, and 10 times, respectively, maintaining the “buy” rating.

Risk warning: Risks such as new industrialization falling short of expectations, new project development falling short of expectations, and overseas market development falling short of expectations.