Incident: The company discloses its 2023 annual report. In 2023, the company achieved operating income of 13.309 billion yuan, +3.95% year on year, net profit to mother of 1,216 billion yuan, +0.48% year on year, net profit after deducting non-return to mother was 1,124 billion yuan, -0.17% year on year. In the 2023Q4 single quarter, the company achieved operating income of 3,529 billion yuan, +16.19% year-on-month, and net profit of 365 million yuan, reversing year-on-year losses, +11.84% month-on-month, and net profit of 319 million yuan after deducting non-return net profit of 319 million yuan, or +5.91% month-on-month.
The company's revenue and net profit to mother continued to grow, and its profitability remained steady, showing strong development resilience.
On the revenue and performance side, in 2023, the company achieved operating income of 13.309 billion yuan, and net profit of 1,216 billion yuan, +0.48% year over year; in terms of profitability, the company's comprehensive gross margin in 2023 was 22.91%, -2.58pct year on year, net interest rate 9.58%, and -0.45 pct year on year, which remained relatively steady. According to the company's 2023 annual report, in the face of an unfavorable market environment, the company's operating income and net profit indicators all reached record highs, showing strong development resilience.
Key indicators are improving, and cash flow has improved substantially. In December 2023, the company's inventory was 2,496 billion yuan, +20.52% year on year; contract liabilities were 3,043 billion yuan, +21.60% year over year. The company's net operating cash flow in 2024 was 2,463 billion yuan, +71.43% year over year, achieving a significant improvement.
The two major businesses, gas sales and air separation equipment, continue to grow; the decline in gross margin of the gas sales business is mainly related to falling gas prices. The company's main business situation in 2023: ① Gas sales business: revenue of 8.194 billion yuan, +2.33%; gross profit margin of 18.75%, year-on-year -6.54pct. We judge that the decline in gross margin was mainly due to the drop in gas prices in 2023. Taking liquid nitrogen as an example, according to Zhuochuang News Industrial Gas's official WeChat account, the average price of liquid nitrogen in China reached 510.07 yuan/ton in 2023, down 10.53% year on year. ② Air separation equipment: Revenue of 4.239 billion yuan, +5.67% year on year; gross profit margin of 31.52%, +4.77pct year on year.
Gas investment and new equipment orders maintained a positive trend, providing support for continued growth in performance. According to the company's 2023 annual report, 1) In terms of gas investment, the company adjusted and optimized the organizational structure of the investment center in a market-oriented manner. On-site pipeline gas investment continued to maintain a strong momentum, and the gas industry investment landscape continued to expand.
The oxygen production capacity of the new gas investment projects signed by the company in 2023 (projects containing nitrogen) was 450,000 Nm3/h. As of December 2023, the company's gas investment had a cumulative oxygen production volume of 3.2 million Nm3/h. 2) In terms of new equipment orders, the company signed new equipment sales contracts amounting to 6.470 billion yuan in 2023, and the annual foreign trade contract amount reached 908 million yuan, accounting for 14.03%.
The company lays out gas business in various fields and has made major breakthroughs in helium supply. According to the company's 2023 annual report, while meeting the gas needs of traditional industries such as steel, the company actively develops medical gases, food gases, high-purity gases, etc., and continues to expand gas applications; it has achieved major breakthroughs in helium supply, becoming the first domestic enterprise to also independently develop successful liquid helium tanks and achieve mass production, directly imported helium sources, and has the ability to guarantee the supply of electronic-grade helium gas.
Industrial gas operating load rates are gradually being restored, and gas prices are expected to rise again. According to data from Zhuochuang News, on March 27, the average weekly operating load rate of industrial gas in China was 67.23%, +0.44pct compared to the previous month, showing a gradual recovery trend.
Profit forecast. We expect the company's net profit to be 1,407/17.67/ 2.009 billion yuan for 2024/2025/2026, and EPS of 1.43/1.80/2.04 yuan/share, respectively. We gave the company a PE valuation of 24-26 times in 2024, with a reasonable value range of 34.31-37.17 yuan/share (the company's EPS is estimated to be 1.43 yuan in 2024), which is “superior to the market” rating.
Risk warning. Equipment order execution progress fell short of expectations; gas prices fell sharply; industrial economic recovery was lower than expected; competition in the gas market intensified.