Operating income increased slightly, and net profit to mother declined sharply year over year. In 2023, the company achieved operating income of 2,988 million yuan (+3.46%), net profit attributable to mother of 311 million yuan (-43.90%), and net profit of 306 million yuan (-41.12%) after deducting non-return to mother. Among them, quarterly revenue of 792 million yuan (+4.89%) in the fourth quarter was net profit of 0.36 million yuan. The reasons for the company's loss in performance in the fourth quarter were: 1) most of the company's biomass project units were discontinued and overhauled, which led to large business losses in this sector; 2) the company calculated bad debt provisions for accounts receivable such as renewable energy subsidies based on their credit risk characteristics, and prepared for impairment of some goodwill; and current charges were applied to capitalized expenses for the previous year that did not produce effective R&D results, etc. The reason for the sharp year-on-year decline in the company's net profit in 2023 is that the biomass comprehensive utilization business was affected by a combination of factors such as fleet shutdown and maintenance, inadequate subsidies, continued high fuel prices, and daily operation and management. The profit situation of the biomass comprehensive utilization business continued to be poor, which dragged down the company's performance growth.

The distributed photovoltaic business has maintained rapid development, and there are sufficient reserves of resources for developable projects. The company focuses on high-quality industrial and commercial customers and continues to vigorously expand the distributed photovoltaic business. The installed capacity of distributed photovoltaic projects continues to grow. In 2023, the company added 506.29 MW of distributed photovoltaic installed capacity. By the end of 2023, the company had put into operation a total of 1865.99 MW of distributed photovoltaic projects, an increase of 37.24% over the previous year. In terms of project resource development, the distributed photovoltaic business project that the company decided to carry out in 2023 has a total installed capacity of about 891,400 kilowatts, with a total investment of about 3,575 billion yuan. The company's distributed photovoltaic projects are relatively profitable. In 2023, the company's distributed photovoltaic business gross profit margin was 65.12%, an increase of 0.64pct over the same period in 2022. The future operation of the company's distributed photovoltaic projects will drive the company's performance growth and enhance the company's profitability.

The strategy withdrew from the biomass business sector, and the drag on the company's profits is expected to decrease in the future. In 2023, the company's biomass project was affected by a combination of problems such as inadequate fuel and subsidies, and the entire business sector suffered losses, which had a great impact on the company's annual business performance. In the future, the company will focus on high-quality industries and fields and continuously optimize the energy saving business layout. Currently, the company is simultaneously carrying out biomass project loss control and strategic adjustment and exit work to reduce the impact of the biomass business on the company's overall performance.

Risk warning: The installed capacity of distributed photovoltaic projects falls short of expectations; electricity prices are falling; biomass fuel prices continue to be high; and market competition is intensifying.

Investment advice: Due to biomass projects dragging down performance growth, the company's profit forecast is expected to be 5.75/7.57/925 million yuan for 2024-2026 (the original forecast value for 2024-2025 was 964/1.03 billion yuan), with a year-on-year growth rate of 84.9%/31.8%/22.1%; EPS for 2024-2026 is 0.15/0.20/0.24 yuan, respectively, and PE corresponding to the current stock price is 33.1/25.1/20.6x, respectively. The company was given 27-28 times PE in 2025, corresponding to the company's equity value of 204-212 billion yuan, corresponding to a reasonable price of 5.40-5.60 yuan/share, with 8-12% premium space compared to the current stock price. Maintain a “buy” rating.