Incidents:

The company released its 2023 annual report: the company achieved operating income of 2,907 million yuan, a year-on-year decrease of 18.92%; realized net profit attributable to shareholders of listed companies of 218 million yuan, a year-on-year decrease of 43.36%; realized net profit attributable to shareholders of listed companies after deducting non-recurring profit and loss of 141 million yuan, a year-on-year decrease of 51.47%.

Comment:

Market demand is weak, and short-term performance is under pressure. In 2023, due to weak business demand for sanitation equipment, construction machinery, mining equipment, and sanitation services, the company's revenue declined. By business, sanitation equipment achieved revenue of 1,197 billion yuan, a year-on-year decrease of 32.91%; construction machinery revenue of 818 million yuan, a year-on-year decrease of 15.82%; and sanitation service revenue of 699 million yuan, a year-on-year decrease of 0.31%. The company's gross sales margin was 27.45%, down 2.07 percentage points year on year; net sales margin was 7.78%, down 3.87 percentage points year on year. Based on the principle of prudence, in 2023, the company's total asset value reserve was 127 million yuan, reducing the company's total profit.

The company's sales volume of sanitation equipment declined, and new energy sanitation equipment steadily led the industry. In 2023, local government financial payments were under pressure, sanitation service enterprises were tight on capital, and the enthusiasm to procure sanitation equipment declined. According to data disclosed by the China Automobile Association, the risk of sanitation equipment in 2023 was 77,183 units, a year-on-year decrease of 6.1%. The company sold 2,748 units of sanitation equipment, a year-on-year decrease of 31.21%. Despite the weakness of the traditional sanitation equipment market, the market demand for new energy sanitation equipment is growing rapidly with mature technology, reduced costs, and policy support. In 2023, 6,227 new energy sanitation equipment was insured, an increase of 27.7% over the previous year, and the penetration rate of new energy was 8.1%. With pure electric and fuel cell sanitation equipment development and industrialization as the main line, and independent research on key technologies “battery, motor, electric drive, electric bridge, electronic control” and “wire control chassis” as entry points, the company has made many major breakthroughs in key technologies of new energy systems, fuel cell vehicle performance improvement, energy saving technology, intelligent driving, and work efficiency improvement. In 2023, the company insured 1,150 new energy sanitation vehicles, with a market share of 18.5%, ranking first in the industry for four consecutive years in terms of ownership. In 2024, as the price of lithium carbonate falls and the cost of lithium iron phosphate batteries decreases. At the same time, along with the improvement in the economy and safety of new energy sanitation vehicles and the increase in customer acceptance of downstream sanitation services, the NEV sanitation equipment market is expected to maintain high growth. As a leading enterprise of new energy sanitation vehicles, the company is expected to continue to enjoy the dividends of the rapid development of the industry.

The company remains cautious about the sanitation service business and strengthens repayment efforts. In 2023, risk prevention will be placed in an important position for sanitation service project companies, and strategic project structure optimization will be carried out. The company's subsidiary Aolande's revenue was 668 million yuan, down 1.96% year on year; net profit was 11 million yuan, down 88.11% year on year. It is worth mentioning that Aolande's operating cash flow was 102 million yuan, an increase of 12.66 times over the previous year. Currently, local finance is tight, and repayment cycles in underdeveloped regions are lengthening, and there is a risk of bad debt losses. By controlling project risks and selecting higher quality projects, the company is conducive to achieving quality growth.

Demand in the sanitation service industry is rigid, and the overall scale of the industry is growing. In 2023, the contract amount for domestic sanitation market-based tender opening projects was 2233 billion yuan, and annualized contracts were 74.4 billion yuan, an increase of 7.5% over the previous year. The annual value of the company's sanitation service projects at the end of the reporting period was 700 million yuan. In 2024, it is expected that the company's sanitation service business will maintain steady development, give full play to the advantages of equipment+service, and achieve refined, informatization and efficient management.

The company grasps the trend of electrification of mining equipment and construction machinery. In 2023, domestic construction machinery is in a downward cycle due to factors such as slowing investment in infrastructure projects, declining prosperity in the real estate industry, and industrial restructuring. The company sold 568 units of construction machinery, a year-on-year decline of 23.55%. In the construction machinery segment, the company digs deep into customer needs, continues to electrify rotary drilling rigs and rapidly expand models, and takes the lead in releasing and selling the industry's first extended-range electric compactor to maintain its leading position in the industry. In the field of mining equipment, the company focuses on new energy mining vehicles, developing three-electric systems suitable for complex mining conditions, and matching diverse charging and energy supplementation solutions for vehicles. Mining equipment is developing in the direction of new energy, unmanned operation, and large-scale development.

As fuel prices are high and pure electric mining vehicles are cost-effective, the market penetration rate is expected to increase.

Maintain the company's “gain” rating. Net profit attributable to shareholders of listed companies in 2024, 2025, and 2026 is estimated to be 267 million, 317 million yuan, and 378 million yuan, corresponding to earnings of 0.49, 0.58, and 0.70 yuan per share. Based on the closing price of 9.17 yuan/share on April 16, 2024, the corresponding PE is 18.60, 15.68, and 13.14 times. In the short term, the company's sanitation equipment, engineering equipment and other businesses have been adjusted due to overall macroeconomic factors. The company operates steadily in the long term, and is expected to grasp the trend of electrification and intelligence of sanitation equipment and engineering equipment to achieve continuous growth, and the company's dividend ratio is high, maintaining the company's “increase” investment rating.

Risk warning: Local finance is tight, market demand falls short of expectations; slow repayment of accounts receivable, capital occupation, and risk of bad debt losses.