Description of the event

Ice Wheel Environment released its 2023 annual report, achieving full year revenue of 7.496 billion yuan, up 22.9% year on year; net profit to mother of 655 million yuan, up 53.7% year on year; the company previously predicted net profit of 58—70 million yuan. Among them, Q4 achieved revenue of 1,920 billion yuan, a year-on-year increase of 6.4%; net profit to mother of 90 million yuan, a year-on-year decrease of 7.0%; and net profit after deducting non-return to mother of 0.32 million yuan, a year-on-year decrease of 65.5%.

Incident comments

2023Q4's revenue growth slowed significantly year over year. 2022Q4's revenue increased 21.3% year over year, making it the fastest revenue growth period in the four quarters of 2022. 2023Q1/Q2/Q3/Q4 The company's revenue was 1.57 billion yuan/2.09 billion yuan/1.92 billion yuan/1.92 billion yuan, up 24.5%/52.4%/15.2%/6.4% year on year. The second quarter began with increased macroeconomic pressure, a slowdown in capital expenditure in some previously high-growth segments, and a gradual increase in the base for the same period in 2022. It is estimated that the order growth rate will slow down from 2023Q2 (contract liabilities can partially reflect the company's order advance accounts; the balance of debt contracts at the end of Q1-Q4 in 2023 The year-on-year growth rates were +36.4%/+13.8%/-6.0%/-4.0%, respectively), which had a certain impact on revenue growth in the second half of the year. According to the annual report data, it is estimated that 1) the revenue of refrigeration and compression equipment was about 4.6 billion yuan, up about 22% year on year. The revenue growth rate of this sector slowed significantly in the second half of the year; 2) the revenue of central air conditioning (Dunham Bush Group) was about 2.3 billion yuan, up about 35.5% year on year; 3) the revenue of energy saving and heating (Huayuan Taimeng) was about 590 million yuan, a slight decrease year on year.

The net profit of the 2023Q4 company fell by about 7.0% year on year, and it is estimated that equity incentive costs will have a significant impact. The net profit for Q1/Q2/Q3/Q4 in 2023 was 108 million yuan/264 million yuan/193 million yuan/90 million yuan, respectively, +116.7%/+102.8%/+29.3%/-7.0%; fourth quarter performance was average, probably due to: 1) year-on-year revenue growth slowdown; 2) Impact of equity incentive expenses: The company completed the grant of most equity incentive shares in September 2023. It is estimated that the company will incur equity incentive expenses in the previous three quarters of about 14.83 million yuan. With an income tax rate of 11.8%, the Q4 forecast is estimated to be about 102 million yuan in the net profit range due to the impact of equity incentive costs, an increase of about 5.5% over the previous year, which is consistent with revenue performance (estimated value, for reference only); 3) Investment income base interference: 2022Q4 investment income totaled 85 million yuan, including investment income from the company reduced holdings of some of Qingda Environmental Protection's shares (estimated at about 0.29 million yuan before tax), forming a high base, while 2023Q4 did not reduce Qingda Environmental Protection's equity holdings. The gross profit margin for the full year of 2023 was 25.6%, up 2.87pct year on year; the net profit margin was 8.87%, up 1.95pct year on year; net cash flow from operating activities was 340 million yuan, down 47.0% year on year, and cash flow deteriorated slightly.

Deeply involved in compressors for more than 60 years, mastering core technology, medium- and long-term demand in the cold chain and energy conversion fields is still there. 1) Cold chain field:

The “14th Five-Year Plan” cold chain logistics development plan was introduced, and it is estimated that the 14th Five-Year Plan will drive an investment scale of about 71.7 billion yuan in refrigeration and compression equipment during the 14th Five-Year Plan period. The company has a market share of over 30% and is the industry leader; it has cold chain system integration technology and can produce a full range of screw compressors. The core products have won two national awards including the National Science and Technology Progress Award and the National Technological Invention Award. Up to now, 3 batches of key cold chain logistics bases in 100 countries have been released, involving 66 (the third batch of 25 was released in June this year). It is speculated that the actual construction progress is lower than the schedule, and there is a possibility of accelerated release in the future. 2) Energy and chemicals:

Demand for orders in the fields of petrochemicals, LNG, lithium batteries, etc. is still very high, driving the company's compressor business growth, and there is domestic replacement and overseas logic. 3) Forward-looking layout of CCUS carbon capture equipment and hydrogen energy equipment.

Profit forecast and valuation: We expect the company to achieve revenue of 87.5/101.8/11.77 billion yuan in 2024-2026, up 16.8%/16.3%/15.6% year on year; net profit to mother of 742/8.71/10.16 billion yuan, up 13.4%/17.4%/16.6% year on year, corresponding PE valuation of 12.1x/10.3x/8.9x. Maintain a “buy” rating.

Risk warning

1. Cold chain and industrial order releases fall short of expectations; 2. Risk of rising raw material costs.