Incident: On April 9, 2024, the company released its 2023 annual report. During the reporting period, the company achieved revenue of 4.59 billion yuan, an increase of 12.03% year on year; achieved overseas revenue of 1,475 billion yuan, an increase of 30.65% year on year; realized net profit attributable to shareholders of listed companies was 371 million yuan, an increase of 35.06% year on year. The gross margin/net profit margin for the fourth quarter was 31.19%/3.55%, +1.52/-6.41 pcts year on year. Profit was mainly affected by falling inventory asset prices. Looking at the whole year, the gross margin/net interest rate was 31.51%/7.15%, up 1.4/0.79 pcts year over year, maintaining a positive trend.

The cornerstone business is growing steadily, and expanding overseas to increase profits. Despite the contraction of some downstream demand due to the external economic environment, industrial automation continued to grow steadily. During the reporting period, the company's sales in various industries and products exceeded 100 million yuan. By opening up strategic business channels and developing overseas projects, it achieved rapid growth in overseas markets, and carried out in-depth industry cooperation with well-known enterprises in the lifting, steel, petroleum, chemical, coal, offshore shipping and other industries to help the sector achieve revenue of 2,542 billion yuan in 23 years, an increase of 10.70% over the previous year. In terms of network energy, the company successfully won the bid for UPS and battery procurement projects for banking computer rooms. Related products are widely used in rail transit projects in cities such as Foshan, Changsha, Tianjin, Chengdu, and Wuhan. With the rapid development of 5G, AI, and the industrial Internet, the network energy business achieved operating revenue of 825 million yuan during the reporting period, an increase of 13.17% over the previous year. Overseas business expansion and product structure optimization have driven the company's two cornerstone business profitability improvements. Industrial automation/network energy achieved gross profit margins of 37.86%/34.32% in 23, respectively, an increase of 1.91/6.05 pcts over the previous year.

Short-term disruptions affected performance, and the new energy sector revived. In 2023, the company achieved revenue of 701/304 million yuan in the field of new energy vehicles and photovoltaic energy storage respectively, with a year-on-year increase of 15.40%/12.28%, achieving a gross profit margin of 18.58%/19.79% for electric drive and vehicle power supply/inverter products, -5.54/+2.64 pcts year-on-year. The pace of product implementation for core car customers and overseas inventory problems in the PV industry affected the company's new energy business performance in 23 years, but the company has also continued to be active in passenger car products. With breakthroughs in innovation, the photovoltaic industry's storage cycle is also expected to reach an inflection point. We are optimistic about the subsequent growth of the company's new energy sector.

Investment advice: The company is a leading provider of industrial automation and energy and power solutions in China. It develops a business layout around upstream IGBTs, builds on the traditional basic business of industrial control, and expands the field of new energy business.

I am optimistic that the company's industrial control inverters and data center UPS will maintain steady growth; the growth rate of electronic control of new energy vehicles will rebound; and the rapid release of optical storage inverters. The company is expected to achieve operating income of 5.769 billion yuan, 7.359 billion yuan and 9.431 billion yuan respectively in 2024-2026, and net profit to mother of 462 million yuan, 579 million yuan and 718 million yuan, an increase of 24.4%, 25.4% and 23.9% over the previous year. The corresponding EPS is 0.57, 0.72, and 0.89, respectively, and the PE corresponding to the current stock price is 13.6/10.8/8.7 times, respectively.

Risk warning: shortage of raw materials and risk of price fluctuations; new business market expansion falls short of expectations; production capacity expansion falls short of expectations; overseas situation risk and exchange risk, etc.