Net revenue grew rapidly in 23Q4, and achieved steady growth throughout 2023. In 2023, the company achieved revenue of 3.197 billion yuan (yoy +5.06%), net profit attributable to mother of 461 million yuan (yoy +28.73%), and net profit of 453 million yuan (yoy +26.47%) after deducting non-return to mother net profit of 453 million yuan (yoy +26.47%). In 23Q4, the company achieved revenue of 1.50 billion yuan (yoy +76.60%), net profit of 160 million yuan (yoy +110.23%), and net profit of 162 million yuan (yoy +170.68%) after deducting non-return to mother. The company plans to distribute a cash dividend of 10 yuan for every 10 shares, for a total of about 338 million yuan (tax included). We expect net profit due to mother in 2024-2026 to be 5.51/659 million yuan, respectively; the comparable company Wind agreed to have an average PE value of 15 times in 24, giving the company 15 times PE in 24 years, corresponding to a target price of 24.45 yuan (previous value of 30.59 yuan), maintaining a “buy” rating.

Foreign trade revenue increased 15.21% year on year, and net cash flow from operating activities performed well 1) Main products: 23 billion yuan in explosion-proof products, 321 million yuan in professional lighting and other products, and 274 million yuan in engineering revenue; 2) By domestic and foreign trade: domestic trade achieved revenue of 2.5 billion yuan, of which security intelligent products achieved revenue of 210 million yuan and foreign trade department revenue of 700 million yuan, an increase of about 11% year-on-year.

The net cash flow from the company's operating activities in '23 was 627 million yuan, +245.70% year-on-year, mainly due to an increase in cash received from selling goods and improving labor services.

Changes in the business structure raised the gross margin level in 23, and the cost ratio slightly increased the company's gross profit margin in 23 by 54.19%, +3.81 pp; the company's net profit margin was 14.63%, +2.82pp year on year. The increase in gross margin was mainly due to business restructuring. The share of revenue from the new energy EPC business with relatively low gross margin declined, and the company's overall gross margin increased accordingly. The company's sales/management/R&D/finance expenses in '23 were 26.87%/5.27%/4.43%/-0.27%, respectively, -0.82pp/+1.75pp/+0.82pp/+0.21pp, respectively. The total rate for the period was 36.30%, +1.96pp. The increase in the cost rate during the period was mainly due to an increase in management expenses due to an increase in service and consulting expenses, and a year-on-year increase in R&D expenses due to an increase in R&D personnel remuneration and material investment.

The company continues to optimize the intelligent management and control system of security industry, strengthen domestic trade export sales and the layout of emerging industries. The domestic trade market has formed seven major business segments, including oil and gas chemicals, marine engineering ships, and security intelligent control platforms. The foreign trade market has successively established three major overseas operation centers in Europe, Central Asia and Southeast Asia. The company followed up on market upgrades and continued to iterate products. The “SCS Intelligent Safety Control System” with independent intellectual property rights integrates 10 major sub-systems, including smart lighting control and smart power distribution control, to fully cover customers' on-site safety control needs. In 2023, the security system achieved sales revenue of 210 million yuan, an increase of about 17% over the previous year. Furthermore, with excellent product quality and good brand reputation, the company is currently the only domestic explosion-proof electrical appliance company to achieve batch export. In the future, the company is expected to continue to strengthen its business layout in various industries, regions, and multiple businesses such as photovoltaics, safety, pyrotechnics, military industry, nuclear power, foreign trade, and lighting, to achieve steady profit growth.

Risk warning: The increase in overseas market share falls short of expectations, the expansion of new fields falls short of expectations, and exchange rate fluctuations.