2023 results are in line with our expectations
The company announced its 2023 results: revenue of 3.53 billion yuan, up 20.7% year on year, net profit to mother of 340 million yuan, up 22.7% year on year. Excluding share payment fees, net profit to mother increased 46.3% year on year, and the performance was in line with our expectations. Looking at a single quarter, 4Q23 revenue was 1.46 billion yuan, up 1.3% year on year, and net profit to mother was 130 million yuan, down 18.1% year on year.
Profit margins continue to recover. In 2023, the company's comprehensive gross profit margin was 32.4%, compared with +2.5ppt, mainly due to the recovery in gross margin of the computer room temperature control business and the increase in the share of revenue from the cabinet temperature control business with higher gross margin. The company's expense ratio for the 2023 period was 19.5%, +1.6ppt, and the sales/management/R&D/finance expense ratios were +0.3pp/+0.4pp/+0.8ppt, respectively; total asset+credit impairment losses totaled 96.21 million yuan, an increase of 39.1 million yuan over the previous year. The company's net interest rate in 2023 was 9.7%, +0.2ppt year on year. Excluding share payments, the net interest rate in 2023 was 11.6%, up 2.0ppt year on year.
Cash flow has improved markedly. In 2023, the company's net cash flow inflow from operating activities was 450 million yuan, with a year-on-year increase of 360 million yuan. Of these, 4Q23 net cash flow inflow from operating activities was 430 million yuan, an increase of 340 million yuan over the previous year. The company's contract debt at the end of 2023 was 180 million yuan, an increase of 84.25 million yuan over the previous year.
Development trends
IDC's temperature control gross margin improved, focusing on a new growth curve driven by liquid cooling penetration. In 2023, the company's computer room temperature control business revenue was 1.64 billion yuan, up 13.8% year on year, gross margin was 31.5%, +6.0 ppt year on year, mainly due to changes in product sales mix and fluctuations in raw material prices, etc., focusing on subsequent trends. Looking to the future, under the catalyst of the AI industry, demand for server liquid cooling and cooling is being implemented at an accelerated pace. The 2024 Nvidia GTC conference released the GB200 NVL72 multi-node liquid cooling rack expansion system to achieve high computing density. Considering that the company has full chain capabilities and products in the liquid cooling field, we believe that server liquid cooling penetration is expected to drive the growth of the company's computer room temperature control and electronic cooling business.
Downstream demand for energy storage temperature control remains booming, and pay attention to changes in market competition. In 2023, the company's energy storage temperature control revenue was about 1.22 billion yuan, up 44% year on year, maintaining rapid growth; gross margin was 32.2%, a year-on-year decrease of 0.14ppt, mainly due to increased competition in some markets. Looking to the future, according to CICC Power New Group, global energy storage shipments are expected to exceed 250 GWh in 2024, an increase of about 40% over the previous year, and downstream demand will remain strong. Considering the company's brand advantage, customer base, and comprehensive product competitiveness in the energy storage industry, we believe that downstream demand is expected to support the company's energy storage temperature control business to continue to grow rapidly, while paying attention to changes in market competition
Profit forecasting and valuation
Maintain the outperforming industry rating, keep the 2024 profit forecast unchanged, and introduce a profit forecast of 630 million yuan for 2025. Currently trading at 32.8x/26.6x 2024/2025 P/E. The target price remains unchanged at 36.71 yuan, corresponding to 40.8x/33.0x 2024/2025 P/E, with 24.2% upside.
risks
The penetration rate of liquid cooling fell short of expectations, the competitive trend of the industry exceeded expectations, and the installed capacity of energy storage fell short of expectations.