Net profit after deduction in 2023 increased 90.15% year over year, and gross margin was significantly restored. The company released its 2023 annual report. In 2023, the company achieved operating income of 2,593 billion yuan, a year-on-year increase of 11.03%, a gross profit margin of 20.75%, a year-on-year increase of 3.78 pct, net profit to mother of 242 million yuan, an increase of 112.60%, net profit after deduction of 231 million yuan, an increase of 90.15% year-on-year, and a net profit margin of 8.93% after deduction, an increase of 3.77 pcts year-on-year. In 2023, the company produced 803.16,600 square meters of various rubber conveyor belts, an increase of 11.02% over the previous year. The company achieved operating income of 738 million yuan in the fourth quarter of 2023, up 12.84% month-on-month, 15.66% year-on-year, and net profit of 79.18,600 yuan, up 32.83% month-on-month and 176.68% year-on-year, after deducting net profit of 73.84 million yuan, up 25.24% month-on-month and 115.83% year-on-year.

Cash dividends paid in 2023 totaled $103 million. The company drew up a profit distribution plan for 2023, based on the total share capital on the share registration date when the distribution plan was implemented in the future, with a cash dividend of 2.50 yuan (tax included) for every 10 shares, and the remaining undistributed profit was carried over to the next year; no bonus shares were given, and no share capital was transferred from the Provident Fund. Assuming that the share capital did not change before the share registration date of this equity distribution, the total cash dividend was about 103 million yuan, accounting for about 43% of the company's net profit to the mother in 2023. The company issued a shareholder return plan for the next three years (2024-2026). According to the plan, in principle, the company will pay a cash dividend every year after review and approval at the annual shareholders' meeting. The cumulative profit distributed in cash for the next three years (2024-2026) is not less than 30% of the average annual profit distribution achieved in those three years. Profit distribution can be made using cash, stocks, a combination of cash and stocks or other methods permitted by law or regulations, and priority is given to cash dividends.

Conveyor belt production capacity continues to expand, driving future performance growth. The company's convertible debt project “15 million square meters of high-strength, energy-saving and environmentally-friendly conveyor belt project” was put into operation in 2023, and the company's conveyor belt production capacity increased to 90 million square meters; in the “Taisheng Intelligent Manufacturing Production Base Project”, the company invested a total of 700 million yuan. The first phase of the project has already completed infrastructure and will enter the trial production stage. It is expected that production will begin gradually in the second quarter of 2024. The second phase of 30 million square meters is expected to complete equipment installation by the end of 2024. In the future, the commissioning of the project will further increase the company's production capacity to increase its market share.

Profit forecast. We estimate that the company's net profit for 2024-2026 will be RMB 292, RMB 3.50, and RMB 411 million (the original 2024-25 was RMB 314 million and RMB 355 million), corresponding to EPS of RMB 0.71, RMB 0.85, and RMB 1.00, respectively. Referring to companies in the same industry, we gave the company 15 times PE in 2024 (originally 20x in 2023), corresponding to a target price of 10.65 yuan, maintaining a “superior to the market” rating.

Risk warning. Project construction progress falls short of expectations, prices of raw materials and products fluctuate greatly, safety and environmental risks, and macroeconomic decline