Key points of investment:
Incident: The company released its annual report. In 2023, the company achieved revenue of 1,510 billion yuan, yoy +0.37%; net profit to mother was 203 million yuan, yoy -28.51%, and the performance was lower than expected.
Environmental monitoring system: Affected by weak downstream demand and increased competition, the company's revenue and gross profit declined. Due to weak downstream demand in 2023, the company's environmental monitoring system revenue was 1,208 billion yuan, yoy -5.53%; at the same time, competition intensified, and overall gross margin fell 5 percentage points to 41.4%. 1) Corporate emissions monitoring: The company adheres to the mid-to-high-end positioning, reached stable cooperation with large groups through framework selection, won bids for many large-scale projects in typical industries such as petrochemical and electric power, and made new progress in segments such as heavy metals monitoring. 2) Environmental quality monitoring: Give full play to the demonstration effect of the performance of national monitoring stations. The company won the bid for the national station equipment renewal project, the first traffic pollution traceability online monitoring system, the first atmospheric composite monitoring station project, and the first new domestic atmospheric photochemical three-dimensional navigation monitoring vehicle project, and won the bid for the smart Yellow River refined management and monitoring project.
Industrial process analysis: Major projects in the field of traditional petrochemical cement have been accepted, progress has been made in new fields such as natural gas, nuclear power, and hydrogen energy, and has been selected as a qualified supplier for leading semiconductor companies. In 2023, the business revenue was 244 million yuan, yoy +42.16%; the company won the bid for several major projects in the petrochemical, cement and other industries, and made progress in industry projects such as gas analysis for natural gas helium extraction devices, impurities analysis in nuclear power high temperature air cooling systems, and purity analysis in hydrogen production processes. The company brand was selected for the first time as a qualified supplier for leading companies in the domestic semiconductor industry, and will join forces with the Orthodyne brand to expand the semiconductor specialty market in the future.
Carbon monitoring: The company accelerates the promotion of products such as carbon monitoring systems and carbon account management systems. The company won the bid for several carbon monitoring test site projects in the thermal power, cement and other industries. In the next step, the company will seize the market opportunities brought by deepening the carbon monitoring and evaluation pilot work, focus on promotion, and continue to develop key customers for products such as ships' carbon emission measurement and monitoring systems and carbon account management systems.
Scientific instruments: Focus on promoting a full line of self-produced products such as explosion-proof industrial gas chromatographs and explosion-proof laser gas analyzers, and increasing the promotion of Orthodyne brand products in domestic semiconductor and other industries to push the company to move towards more high-end analytical instruments.
Cash flow continued to improve, with a dividend rate of 92.5% in 2023. The net cash flow from the company's operating activities in 2023 reached 318 million yuan, yoy +54.96%, and the balance ratio in 2023 was about 15%. The company plans to distribute cash dividends of 3 yuan for every 10 shares to all shareholders. The estimated cash dividend amount for 2023 is 188 million yuan, accounting for 92.5% of net profit due to mother in 2023.
Investment analysis opinion: Taking into account demand and increased competition, the company's net profit to mother for 2024-25 was lowered to $224/258 million ($305/349 million before the reduction), and the 2026 forecast was increased by $291 million. We are optimistic that the company's main business is expected to benefit from thermal power infrastructure restoration, etc., and that businesses such as industrial process analysis and carbon monitoring are expected to expand, but considering the reduction in profit forecasts, the rating will be lowered to “gain weight”.
Risk warning: The new construction of thermal power generation falls short of expected risks, the implementation of policies in the non-electricity sector falls short of the expected risk, there is a risk that market competition will increase, and the progress of new business development falls short of expectations.