The 2023 results are in line with the previous forecast and are slightly lower than our expectations. The company achieved revenue of 1,122 million yuan, +10.17% year on year, net profit to mother of 210 million yuan, +18.05% year on year; of these, 4Q23 achieved revenue of 247 million yuan, +0.44% year over year, and net profit of 28 million yuan, or -14.21% year over year. The annual report results are in line with the previous forecast and are slightly lower than our expectations. The main reason is that the pace of implementation of the filing project is slow.
Development trends
By expanding the pool of registered projects and increasing the conversion rate and speed of projects, it is expected that performance flexibility will gradually be unleashed. In 2023, the company's revenue growth was steady. By product, the energy efficiency management products and systems business led the revenue growth rate, +20.16% over the same period last year. The company focuses on industries with high investment boom, such as semiconductors, electronics plants, and new materials. Through R&D personnel, the market sinks in depth, and at the same time trains high-quality dealers to expand more end customer resources for the company (1-3Q23 added 101 new dealers, the number of dealers reached 198 by the end of 3Q23). As of the end of 3Q23, the company had about 501,000 registered projects, with a total project amount of about 8 billion yuan. A rich filing project pool lays the foundation for flexible release of performance. Since 2022, many of the company's registered projects have experienced lengthening investment cycles and delays in construction. In order to improve project conversion rate and conversion speed, the company strengthens follow-up management of order execution in terms of sales assessment and management processes, and we are optimistic that the company will gradually release performance flexibility in 2024.
Actively promote overseas business and new energy business, and open up room for growth. The company actively expands in Southeast Asia, Europe, the Middle East, Africa, North America, etc., and trains business teams with Singapore as the center to radiate the Southeast Asian market. In 2023, the company's overseas business achieved revenue of 33.11 million yuan, +128.10% year-on-year. In 2023, the company's new energy-related products such as source network load storage platforms (charging piles, photovoltaics, energy storage monitoring modules and systems) and charging pile products also developed well.
Product upgrades drive increased profitability and significantly improved cash flow. The company's gross profit margin in 2023 was 46.39%, +0.24ppt. We believe that as the product is upgraded from EMS 1.0 to EMS 2.0 and EMS 3.0, the level of system integration and added value has increased, while the company's pricing power and bargaining power have improved, driving a further increase in gross margin. We are optimistic about the profit elasticity brought about by the product upgrade.
The company's expense ratio for the 2023 period was 31.97%, which was basically the same as the previous year. Net cash flow from the company's operating activities increased 93.52% year over year in 2023, mainly due to increased repayments and a significant improvement in cash flow.
Profit forecasting and valuation
Considering that the pace of implementation of filing projects needs to be accelerated, we lowered our 2024 net profit forecast by 21% to 276 million yuan, and introduced a 2025 net profit forecast of 351 million yuan. The current stock price corresponds to 17/13x2024/25e P/E. Maintaining an outperforming industry rating, taking into account the profit reduction and valuation switch to 2024, the target price was lowered by 10% to 29.6 yuan, corresponding to 23/18x 2024/25e P/E. Currently, there is still room for a 35% increase in stock prices.
risks
Competition in the industry intensified, market development fell short of expectations, and the pace of project implementation fell short of expectations.