The recovery of the company's smart port business in 2023 led to rapid revenue growth. After a year and a half of hard work, the overseas business is gradually entering a harvest period. In addition, the company launched the multi-modal smart port M2-GPT model, which is expected to fully benefit from AI+ port development in the future and maintain a “highly recommended” rating.

Incident: The company released its 2023 annual report, achieving revenue of 1,573 million yuan, YoY +59.03%; net profit of 198 million yuan, YoY +105.05%; net profit without return to mother of 172 million yuan, YoY +149.94%; 23Q4 single quarter revenue/net profit attributable to mother/ net profit after deducting non-attributable net profit YoY +80.86%/107.44%/390.46%.

The recovery of the smart port business has led to rapid revenue growth. In 2023, smart port inspection system solution revenue was 1,419 billion yuan, YoY +72.85%, and the revenue share increased to 90.20% (82.98% last year); intelligent transportation and other revenue was 147 million yuan, YoY -11.84%. Smart port revenue has grown rapidly, mainly benefiting from the resumption of port entry/exit business. China's inbound and outbound traffic has rebounded sharply since the end of 2022. At the same time, the country has promoted “smart customs”, “Belt and Road”, and visa-free transit policy adjustments, etc., which have also created favorable conditions for the recovery of smart port business.

Asset depreciation is dragging down profit side performance. In 2023, the company's comprehensive gross profit margin was 39.20%, down 1.45pct year-on-year. The short term was mainly affected by factors such as project size and project structure. In terms of expenses, sales, management, and R&D expenses in 2023 increased by 44.04%/64.16%/-2.19%, respectively. Among them, the increase in management expenses was mainly affected by share payment expenses (24.91 million). The company's net interest rate to mother was 12.60%. Although there was a year-on-year increase (+2.85pct), it was still clearly affected by asset depreciation. Affected by the objective environment and settlement cycle, repayment of some of the company's projects was delayed, and a total of 133 million yuan was prepared for asset impairment. However, the company's main customers are the government and state-owned enterprises. The risk of repayment is small, and preparations for impairment are expected to be recovered one after another.

Overseas, AI is expected to become a new highlight. The company began overseas travel in the second half of 2022. Up to now, it has established wholly-owned subsidiaries or offices in many countries in Africa, Southeast Asia, the Middle East, etc., and has signed memorandums of cooperation with governments and enterprises in the United Arab Emirates, Saudi Arabia, Kenya, Kyrgyzstan, etc., which is expected to gradually usher in a harvest period in the future. On the AI side, the company launched the multi-modal smart port M2-GPT model. ChatGPT applications incubated based on this model have been verified in domestic border inspection and customs scenarios. As one of the leading smart port enterprises, the company is expected to fully benefit from the development of AI+ ports in the future.

Maintain a “Highly Recommended” investment rating. The company is expected to have 24-26 revenue of 19.42/24.02/2,863 billion yuan, and net profit to mother of 2.81/3.72/468 million yuan, maintaining a “highly recommended” investment rating.

Risk warning: Domestic smart port demand falls short of expectations; overseas market policy risks; increased competition, etc.