Incident: The company released its 2023 annual report on March 27, achieving full year revenue of 1.04 billion yuan, YoY +24.3%; net profit to mother of 141 million yuan, YoY +27.3%; deducted non-net profit of 139 million yuan, YoY +37.6%. The performance was in line with market expectations. Our comprehensive review is as follows:
4Q23 continued to develop at a high growth rate; reduced impairment losses combined with cost optimization increased net interest rates. 1) Looking at a single quarter: 4Q23 achieved revenue of 360 million yuan, YoY +35.4%; net profit to mother of 48 million yuan, YoY +45.9%; deducted non-net profit of 48 million yuan, YoY +81.0%. 2) Profitability: 4Q23 gross margin decreased by 7.5ppt to 28.8% year on year; net margin increased by 1.0ppt to 13.6% year on year. Gross margin decreased 4.8ppt to 32.4% yoy in 2023; net margin increased 0.6ppt to 14.1% yoy. In 2023, the company's asset and credit impairment losses decreased by 16.13 million yuan to 1.53 million yuan year-on-year, while the expense ratio for the period decreased by 4.1ppt to 16.0% year on year. Together, the two contributed to the increase in net interest rates in 2023.
The five subsidiaries are developing well; new customers & new product expansion have opened up room for growth. Looking at subsidiary companies, 2023:1) Yichun Pioneer achieved revenue of 360 million yuan, YoY +6.4%, and achieved total profit of 0.7 billion yuan; 2) Jiujiang Guoke achieved revenue of 210 million yuan, YoY +183.8%, and total profit of 0.19 million yuan; 3) Spark Military achieved revenue of 80 million yuan, YoY -8.6%, and total profit of 0.2 billion yuan; 4) Xinming Machinery achieved revenue of 220 million yuan, YoY +28.0%; 5) Aerospace Jingwei achieved revenue of 220 million yuan 100 million yuan, YoY +15.3%, achieving total profit of 59 million yuan. In terms of business development, in 2023, the company expanded new products, new projects, new markets and new fields, adding 8 new projects in new fields and adding 7 new customers in new markets. Among intelligent control products, it also expanded intelligent control products such as engine ignition control and combat zone security for type 4 guidance equipment. The company is actively expanding in various fields and is expected to further open up room for long-term growth.
Expenses continued to be optimized over a 23-year period; contract liabilities may reflect strong downstream conditions. The cost ratio decreased by 4.1ppt to 16.0% year-on-year during the 2023 period, including: 1) the R&D expense ratio decreased by 0.8ppt to 7.0% year over year; 2) the management expense ratio decreased by 1.5ppt to 7.5% year over year; 3) the sales expense ratio decreased by 0.2ppt to 1.6% year over year; 4) the financial expense ratio decreased by 1.7ppt to -0.04% year over year, mainly due to interest income from new capital raised.
By the end of 2023, accounts receivable and notes were $250 million, down 45.4% from the end of 3Q23; inventory was $230 million, down 10.0% from the end of 3Q23; contract liabilities were $186 million, up 280.5% from the end of 3Q23, up 75.2% year-on-year from the end of 2022, mainly due to an increase in advance payments. Contract liabilities are rising rapidly or reflect the high downstream boom. Net cash flow from operating activities in 2023 was $440 million, compared to $160 million for the same period last year. The 23-year increase was mainly due to increased sales repayments and an increase in advance payments received from customers at the end of the year.
Investment advice: The company is the overall unit for ammunition equipment and the core supplier of guidance equipment components in China. It has sufficient follow-up projects, and future growth is secure. It will continue to benefit from the intelligent development of ammunition and its consumption properties. At the same time, the company actively implemented employee stock ownership plans, demonstrating confidence in development. Considering the pace of industry orders and the company's continuous development of new products, we fine-tuned the company's net profit from 2024 to 2026 to be 190 million, 240 million yuan, and 290 million yuan, respectively, and the corresponding PE was 37x/29x/24x, respectively, maintaining the “recommended” rating.
Risk warning: downstream demand falls short of expectations; model mass production progress falls short of expectations; product price reduction, etc.