Incident: The company released its 2023 annual report. In 2023, it achieved operating income of 2,988 million yuan, a year-on-year increase of 3.46%, and achieved net profit of 311 million yuan, a year-on-year decrease of 43.85%; 2023Q4 achieved operating income of 792 million yuan, an increase of 4.89% year-on-year, and realized net profit of -36 million yuan, a year-on-year decrease of 121.59% and a year-on-year decrease of 121.05%. A cash dividend of $0.091 (tax included) is proposed for every 10 shares.

The two major energy-saving businesses have maintained steady growth, and pressure on the biomass business is dragging down the company's operating performance.

In 2023, the company's two core businesses, industrial energy efficiency and building energy efficiency, achieved good growth. The industrial energy saving business achieved revenue of 1,470 billion yuan in 2023, up 23.01% year on year, and gross margin decreased 2.02 pcts to 54.49%. Among them, distributed photovoltaic energy saving services achieved revenue of 1,188 billion yuan, an increase of 20.65% year on year, and gross margin increased 0.64 pcts to 65.12%. The building energy efficiency business achieved revenue of 905 million yuan in 2023, an increase of 18.25% over the previous year, and gross margin increased 2.62 pcts to 21.35%.

On the other hand, due to the cumulative impact of problems such as rising fuel prices and delays in the payment of subsidies, the company's biomass business suffered serious losses in 2023. The company's comprehensive resource utilization business achieved operating income of 391 million yuan in 2023, a year-on-year decrease of 39.63%, and gross margin dropped by 44.72 pcts to -19.44%.

The company simultaneously released the 2024 financial budget report, and is expected to achieve revenue of 3.708 billion yuan and total profit of 630 million yuan in 2024.

Continue to vigorously develop the distributed photovoltaic business, with a fixed asset investment plan of 8 billion yuan in 2024.

The company focuses on high-quality industrial and commercial customers and continues to vigorously expand the distributed photovoltaic business. The target completion rate for photovoltaic operation projects is 100%, and the installed capacity of the new distributed photovoltaic projects approved in 2023 reached 891.4 MW. By the end of 2023, the company had 377 distributed photovoltaic projects in operation, with an installed capacity of 1865.99 MW, an increase of 37.24% over the previous year. The company's foreign investment plan for 2024 was 8.175 billion yuan, of which the fixed asset investment plan was 8 billion yuan, an increase of 166.67% over the previous year (3 billion yuan in 2023).

Maintaining the “gain” rating: The company's two main businesses have maintained steady growth, but the biomass business is under heavy operating pressure. As a prudent measure, we lowered the company's profit forecast. The company is expected to achieve net profit of 4.67/6.85/863 billion yuan in 24-26 (43% down/38% /increase). The current stock price corresponds to 41 times the 24-year PE. The company focuses on achieving rapid development in main businesses such as distributed photovoltaics and building energy saving. In the future, it will continue to explore the transformation to a load aggregator to further open up room for growth and maintain an “gain” rating.

Risk warning: Renewable energy power generation payments fall short of expectations; risk of fluctuations in the price of photovoltaic raw materials; risk of deterioration in biomass project operations; increased risk of market competition.