Event: The company released its 2023 annual report. In 2023, the company achieved operating income of 3.197 billion yuan, an increase of 5.06% over the previous year; achieved net profit of 461 million yuan, an increase of 28.73% over the previous year; realized net profit without deduction of 453 million yuan, an increase of 26.47% over the previous year.

The 23-year performance exceeded expectations, the cash repayment situation was excellent, and the high dividend policy continued. The company's revenue side experienced steady growth in '23, achieving revenue of 3.197 billion yuan, of which explosion-proof products/professional lighting and other products/engineering revenue was 26.02/3.21/274 billion yuan, respectively. The revenue side growth rate is lower than the profit side growth rate, mainly due to the decline in revenue and revenue share of the new energy EPC business with low gross margin. According to the division of domestic trade, the company's domestic trade achieved sales revenue of 2.5 billion yuan, of which Angong intelligent products achieved revenue of 210 million yuan; the foreign trade department achieved revenue of 700 million yuan.

In terms of profitability, the company's gross and net sales margins were 54.19%/14.63% respectively, up 3.82pct/2.82pct year-on-year. In terms of cash flow, the company's net cash inflow from operating activities was 627 million yuan, up 245.7% year on year. The net present ratio was 1.34, and the revenue ratio was 94.82%. The company announced the 2023 profit distribution plan and plans to distribute a cash dividend of 10 yuan for every 10 shares, with a cash dividend ratio of 73.21%.

The foreign trade business continued to grow rapidly, and overseas markets expanded rapidly. In 2023, the company's foreign trade department's revenue was 700 million yuan, an increase of 11% over the previous year, accounting for 21.90% of revenue. According to the IEA Petroleum Industry Report, international oil demand will continue to grow, and investment in oil and gas projects in the Middle East, Asia Pacific, Africa and other regions will be intensive. In 2023, the company set up overseas operation centers and put them into operation in Europe, Central Asia, and Southeast Asia respectively. The Saudi joint venture entered the review and registration stage, and is actively planning overseas operation centers in the Far East, Africa, and South America. The company's global market share is expected to increase.

Orders are plentiful in emerging fields, and the intelligent security business is benefiting from the construction of chemical park platforms, and future growth can be expected. Currently, the scale of development of traditional domestic petroleum resources is declining, capital expenditure is gradually increasing investment in the downstream field of fine chemicals. Domestic chemical parks are starting to build intelligent safety risk management and control platforms one after another, adding more than 10 billion dollars in market demand in the field of intelligent safety management and control. The company's security intelligence system revenue exceeded 180 million yuan in '22, and revenue of 210 million yuan in '23. In '23, the company wholly acquired Sichuan Huanyu Zhongheng. The company has a mature technical team of nearly 90 people matching intelligent safety management and control system technology, which is expected to drive the rapid development of the Angong Intelligent Chemical Park business. In terms of business in emerging fields, the company is expanding its market capacity in new fields such as food, medicine, liquor, military nuclear power, pyrotechnics, etc., and is digging deeper into demand in fields such as chemical machinery equipment and marine engineering ships. Currently, the company is full of orders in various fields such as photovoltaics, safety, pyrotechnics, military industry, and nuclear power, and performance growth can be expected.

Profit forecast, valuation and rating: Huarong Co., Ltd. is a global leader in explosion-proof electrical appliances and a high-dividend target in the scarce manufacturing industry. Its main explosion-proof business is advancing in emerging fields and overseas, and has broad room for growth. Maintaining the 24-25 net profit forecast of 540/703 million yuan, adding a 26-year net profit forecast of 783 million yuan, and corresponding EPS of 1.60/2.08/2.32 yuan for 24-26, respectively, maintaining the “buy” rating.

Risk warning: The risk of declining capital expenditure in the domestic petroleum industry, increased risk due to competition in the professional lighting industry, and the risk of fluctuating raw material prices.