Incident: The company announced 2023 revenue of 3.268 billion yuan (YoY -19.11%), net profit to mother of 440 million yuan (YoY -43.25%), net profit after deducting non-attributable net profit of 390 million yuan (YoY -47.28%), gross profit margin of 41.85% (YOY-4.74pps), and net profit margin of 14.15% (YOY-5.07PPs).

Affected by factors such as cyclical fluctuations in the industry and delays in customer bidding projects, the company's short-term performance is under pressure. Looking at a single quarter, 23Q4 achieved revenue of 1,002 billion yuan, -45.14% year over month, and realized net profit of 132 million yuan to mother, -72.14% year over year, and +32.12% month on month.

The decrease in operating income was mainly due to a decline in product orders and a decrease in delivery confirmation revenue. By business, revenue from dedicated wireless communication terminal products/system integrated products/other products was -15.63%/-22.96%/-18.06%, respectively, and gross margin was -1.13/-11.66/+0.12 pps to 49.82%/28.62%/43.34% year-on-year, respectively. On the cost side, the cost rate for the 23-year period was 29.90%, up 2.53 pps over the same period last year. Among them, sales/management/R&D/finance expenses increased by 0.89/0.99/0.56/0.08 pps year-on-year to 2.67%/6.29%/20.60%/0.34%, respectively. R&D expenses were 673 million yuan, a year-on-year decrease of 16.83%, mainly due to delays in the progress of some of the company's scientific research projects and a decrease in R&D material expenditure. On the asset side, accounts receivable at the end of '23 reached $3,332 billion, an increase of 20.79% over the same period last year; inventory book value was $3,077 billion, a decrease of 10.93% over the same period last year. Affected by the mid-term adjustments of the industry's “14th Five-Year Plan” and the fact that scientific research results have not been fully transformed, the company's business performance has declined, but the long-term boom in private network wireless communication is improving, and the company's performance is expected to pick up in 24 years, driven by incentive mechanisms and investment in R&D.

Profit forecast and investment advice: EPS is expected to be 0.98 yuan/share, 1.22 yuan/share, and 1.49 yuan/share for 24-26, respectively. Taking into account the company's competitive position and first-mover advantage in the private network communication field, as well as the company's layout for expanding new fields and new customers, superimposing equity incentives and project follow-up incentives to continuously improve quality and efficiency, the company was given a 24-year PE valuation of 30 times, corresponding to a reasonable value of 29.26 yuan/share, giving it an “increase in holdings” rating.

Risk warning: Market competition intensifies, new business falls short of expectations, product technology iteration risks, etc.