Incident: The company released its 2023 annual report, achieving revenue of 3.197 billion yuan, +5.06% year over year, achieving 461 million yuan, +28.73% year over year, achieving deduction of 453 million yuan without return to mother, +26.47% year over year, exceeding market expectations.

The 2023 results exceeded expectations, and the 2024 outlook continues to grow rapidly.

(1) Growth: In 2023, the company achieved revenue of 3.197 billion yuan, a year-on-year increase of 5.06%, and a return of 461 million yuan, a year-on-year increase of 28.73%. Among them, the fourth quarter achieved revenue of 1.50 billion yuan, a year-on-year increase of 76.60%, and a year-on-year increase of 160 million yuan, an increase of 170.68% over the previous year, exceeding market expectations. We judge that the main reasons include: ① the accelerated confirmation of the New Energy EPC in the fourth quarter (the business was affected by formalities and construction progress; there was no revenue in the first three quarters); ② the revenue growth rate of foreign trade increased in the fourth quarter (foreign trade revenue of 496 million yuan in the first three quarters, up 10.2% year on year), which was 700 million yuan for the whole year, up 11.50% year on year. Looking ahead to 2024, the domestic oil and gas industry's demand structure for explosion-proof appliances will change, capital expenditure in upstream exploration, mining and other fields will narrow, and downstream investment projects in refining, fine chemicals and other fields will increase, and demand for explosion-proof products is expected to continue to rise; safety systems for innovative products are driven by the November 2023 production safety policy, and orders from hazardous chemical parks are expected to land rapidly and contribute to revenue elasticity. According to the company's 2024 financial budget plan, the company's revenue is expected to reach 4,079 billion yuan in 2024, up 27.60% year on year, and return to mother is expected to reach 545 million yuan, up 18.16% year on year, maintaining a rapid growth trend.

(2) Profitability: In 2023, the company's gross margin and net margin were 54.19% and 14.63% respectively, with year-on-year increases of 3.82pct and 2.82pct, respectively. We judge that the main reason was a decrease in new energy EPC business revenue with low gross margin (NEV EPC revenue of 465 million yuan in 2022 and 274 million yuan in 2023, gross margin of this business is about 25%), which accounts for a relatively low share of the revenue structure. The gross margin of the core business explosion-proof electrical appliances in 2023 was 57.64%, a slight increase of 0.63% over the previous year.

(3) Cash flow: In 2023, the net cash flow from the company's operating activities was 627 million yuan, an increase of 245.70% over the previous year, exceeding the net profit level, which fully proved the steady nature of the company's operations.

Explosion-proof electrical appliances: ① Domestic trade: In the traditional petroleum industry, total capital expenditure in the refining and chemical sector has shrunk, and investment in stock project renovation, expansion and upgrading is large; at the same time, market demand in downstream fine chemicals and other fields is gradually increasing, and explosion-proof demand is expected to continue to rise; demand is strong in new fields such as food, medicine, and liquor. ② Foreign trade: Supply and demand in the international oil and gas industry have both increased. The company's rapid layout. The three major overseas operation centers in Europe, Central Asia and Southeast Asia have been established and put into operation, and the Saudi joint venture has entered the registration review stage. We believe that the company is ready to participate in global competition, and overseas markets will become the company's next major source of growth in the future.

Security system: It is an intelligent management and control system platform based on the Internet of Things, big data, 5G and other technologies. Since its launch in 2019, it has been upgraded three times, and the subsystems have been expanded from the original 8 to 10, and so far no peers can imitate it.

The November 2023 production safety policy brought about a high increase in demand for safety systems in the hazardous chemical park industry. The market size exceeds 10 billion dollars, and the company is expected to fully benefit. In addition, the company wholly acquired Sichuan Huanyu Zhongheng Technology Co., Ltd. in 2023. The company currently has a mature technical team of nearly 90 people matching security system technology, greatly enhancing the R&D, operation, maintenance and delivery capabilities of the company's intelligent safety systems business and further accelerating the company's strategic transformation.

Maintaining a “buy” rating: The company's performance in 2023 has exceeded expectations, and the company has budgeted for the 2024 operating situation. Based on this, we have raised the company's profit forecast. The net profit forecast for 2024-2026 is estimated to be $545/6.28/739 million yuan (previous value: 2024-2025 was 507/596 million yuan), and the corresponding PE was 9 times 12/11/9 times, respectively. Maintain a “buy” rating.

Risk warning: There is a risk that the development of new fields falls short of expectations, that progress in overseas markets falls short of expectations, that the expansion of new businesses such as safety systems falls short of expectations, and that performance falls short of expectations based on certain assumptions.