Huarong Co., Ltd. released its 2023 annual report: in 2023, the company achieved operating income of 3.197 billion yuan (+5.06% year over year); net profit to mother of 461 million yuan (+28.73% year over year); net profit after deducting non-return to mother of 453 million yuan (+26.47% year over year).

Key points of investment

Production safety requirements are getting stricter, and demand for explosion-proof electrical appliances has exploded

The development of the explosion-proof electrical appliance industry is closely related to the degree of industrialization. As emerging countries' demand for energy such as oil, natural gas, and coal mines continues to grow, emerging markets will become the main driving force for future global explosion-proof electrical appliance market growth. The global explosion-proof electrical appliance market is expected to reach 8 billion US dollars and a CAGR of +8% by 2025. The domestic petroleum industry's demand structure for explosion-proof electrical appliances has changed. At the same time, with increasing safety awareness and government safety supervision, the explosion-proof industry has expanded from traditional oil and gas chemicals to industries such as grain, oil and medicine, military nuclear power, safety intelligence, etc., especially the intelligent safety control industry. With the release of policies such as the “14th Five-Year Plan” for hazardous chemical safety production, domestic hazardous chemical parks have begun to build intelligent safety risk management platforms one after another, bringing new demand to the market.

Internal and external training, collaborative development of multiple businesses

In 2023, the company's explosion-proof products/professional lighting and other products/engineering revenue achieved revenue of 2,602/3.21/274 billion yuan respectively, including 2.5 billion yuan in domestic trade revenue (210 million yuan in safe and industrial intelligent products revenue) and 700 million yuan in foreign trade revenue. The company's domestic and foreign trade layout is further refined and expanded, product transformation and service capabilities are strengthened, and core competitiveness is enhanced. At the same time, major reforms have been carried out in domestic and foreign trade marketing organizations, and the three major overseas operation centers in Europe, Central Asia, and Southeast Asia have been set up and put into operation. The Saudi joint venture has entered the registration review stage.

Results increased significantly in the fourth quarter of a single quarter, optimizing the company's operating structure

In 2023, the company's revenue in Q4 was 1.50 billion yuan (+76.60% year over year); net profit to mother was 160 million yuan (+110.23% year over year). The company's revenue and profit growth in a single quarter was mainly due to: 1) the new energy EPC business in the energy sector focused on confirming revenue in Q4, contributing to performance growth to a certain extent; 2) changes in the company's business costs and salary system adjustments were coming to an end, and the pressure on Q4 expenses was greatly relieved due to preemptive expenses; 3) the company merged its wholly-owned subsidiary Fujian Baotu Construction Engineering Co., Ltd. in September 2023, which will better reduce operating costs and improve the company's overall operating efficiency.

Profit forecasting

The company's revenue for 2024-2026 is 45.86, 53.39, and 5.969 billion yuan, respectively, and EPS is 1.56, 1.93, and 2.25 yuan respectively. The current stock price corresponds to PE of 13, 10, and 9 times, respectively, giving it a “buy” investment rating.

Risk warning

Macroeconomic fluctuations, new business development falling short of expectations, increased overseas competition, etc.