The Q4 performance exceeded expectations. The optimization of the annual revenue structure led the company to achieve gross margin of 3.20 billion yuan, +5.1% year on year, net profit to mother of 4.6 billion yuan, +28.7% year on year. Among them, Q4 revenue for a single quarter was 1.15 billion yuan, +76.6% year on year, and net profit to mother was 160 million yuan, +110.2% year over year.

The high increase in Q4 performance was mainly due to the extension of some business in Q3 to confirmation in Q4 and the adjustment of the cost calculation policy. In 2023, the company's gross margin was 54.2%, +3.8pct year on year. The main reason was the optimization of the revenue structure, and the share of revenue from the new energy EPC business with low gross margin decreased. Considering the better domestic and foreign downstream demand, we slightly raised our profit forecast for 2024-2025 and added a profit forecast for 2026. We expect the company's net profit to be 5.4/6.5/760 million yuan in 2024-2026 (the value before 2024-2025 was 52/650 million yuan), EPS was 1.60/1.93/2.24 yuan (the value before 2024-2025 was 1.53/1.93 yuan), and the current stock price corresponds to PE 13.6/11.3/9.7 times. Maintain a “buy” rating.

The main explosion-proof business is developing steadily, and the new energy EPC business benefited from the price reduction of upstream components. In 2023, the company's explosion-proof sector revenue was 2.60 billion yuan, including Angong Intelligence's revenue of 210 million yuan; gross margin was about 57.0%, the same as the previous year (combining industrial explosion-proof and mining explosion-proof in the 2023 statistical scale). The revenue from professional lighting products and other products was 320 million yuan. Project revenue revenue was 274 million yuan, and gross margin was 25.2%, compared with +11.9pct (the new energy business was classified as the engineering revenue sector in the 2023 statistical scale), mainly due to a sharp drop in PV module prices.

The boom in overseas oil and gas investment is compounded by improving domestic downstream demand. The 2024 results are expected to accelerate the release of the company's explosion-proof products, expanding and expanding into seven major business segments, including oil and gas chemicals, ships, safety and industrial intelligent control platforms, military nuclear power, food, medicine, and liquor. Among them, international oil and gas supply and demand are increasing. Investment in oil and gas projects is intensive, and the company is expected to benefit from high prosperity as the only enterprise that exports in batches in the explosion-proof electrical appliance industry; Safety and Engineering Intelligence is the company's key business. Domestic chemical parks are starting to build intelligent safety risk management platforms one after another, adding more than 10 billion dollars in market demand in the field of intelligent safety management and control; orders in various new fields such as photovoltaics, pyrotechnics, military nuclear power, and liquor are full, and performance growth is visible. The company will also benefit from the equipment renewal policy. The “Catalogue of Safe Production Process Equipment for Eliminating Outdated Hazardous Chemicals” released in early 2024 is expected to bring in additional volume.

Risk warning: demand in emerging sectors falls short of expectations; overseas market expansion falls short of expectations; risk of exchange rate fluctuations