Net profit to the mother increased by 3.90% in '23, maintaining the “buy” rating and published an annual report. In 2023, it achieved revenue of 3,565 million yuan (yoy -7.16%), net profit of 192 million yuan (yoy +3.90%), deducting non-net profit of 177 million yuan (yoy +26.71%). Among them, Q4 achieved revenue of 1,167 billion yuan (yoy +16.81%, qoq +72.53%) and net profit to mother of 7.295,500 yuan (yoy -75.88%, qoq -80.78%). We expect the company's 2024-2026 EPS to be 0.20, 0.25, and 0.31 yuan respectively (previous value of 0.17, 0.24, 0.32 yuan in 2023-2025). Comparatively, the company Wind agreed to expect an average PE value of 60 times in 24, giving the company 60 times PE in 24 years, with a target price of 12.00 yuan (previous value of 15.6 yuan), maintaining a “buy” rating.
Revenue declined slightly, and gross margin increased significantly
In 23 years, when industry demand was weak, the company's production and operation remained stable. Core dual-use military and civilian products achieved revenue of 3,642 billion yuan, down 7.29% from '22, and gross profit margin of 24.15%, up 2.71 pct from '22. The company's overall gross margin was 24.80%, up 3.20% from '22. In terms of subsidiaries, Hengyang Electric fully completed the annual targets and tasks, achieving revenue of 220 million yuan, up 13.17% year on year, and net profit of 0.70 million yuan, up 168.51% year on year; China Bing Communications achieved revenue of 445 million yuan, a decrease of 16.43%, and realized net profit of 53 million yuan, a year-on-year decrease of 38.65%; China Military Aviation Federation remained stable, achieving revenue of 332 million yuan, a year-on-year decrease of 5.72%, and achieved net profit of 52 million yuan, an increase of 4.71% year on year.
R&D investment increased significantly, and net operating cash flow declined
The cost rate for the 23-year corporate period was 14.83%, up 1.00pct from '22. Among them, the sales expense ratio was 2.09%, the same as in '22; the management expense ratio was 6.50%, a decrease of 0.36pct from '22; the R&D expense ratio was 6.88%, up 1.50pct from '22, and the amount increased by 18.70%, mainly due to the parent company's year-on-year increase in independent R&D investment. In terms of cash flow, the company's net operating cash flow in '23 was 200 million yuan, down 57.37% year on year. It was mainly due to a year-on-year decrease in cash received from sales products and a year-on-year increase in value-added tax and value-added tax surcharges. The company's income tax in '23 was 30.72 million yuan, an increase of 326.04% year-on-year over year '22.
The development project is progressing smoothly. Military inertial guidance is expected to benefit from rocket emissions in 2023. The company completed 86 project development and 78 technical innovations and process research in the environmental control, guidance control, detection control, and stability control series around the three industrial ecosystems of “navigation and control, military communication, and intelligent integrated connection”, and fully completed the annual weapons and equipment development tasks. In recent years, rockets are a type of equipment on a large scale in international military trade and internal deployment. Currently, most rockets use GPS/INS composite guidance. The company has been deeply involved in the field of inertial navigation for many years, and the products are mature applications in various munitions. Therefore, improving demand for rockets is expected to drive demand for inertial guidance products to soar.
Risk warning: Risk of orders falling short of expectations, risk of falling product prices.