Incident: The company released its 2023 annual report. For the full year of 2023, the company achieved total operating revenue of 1,029 billion yuan, +35.04% year-on-year, and net profit to mother of 87 million yuan, +48.02% year-on-year. Among them, Single 23Q4 achieved total operating revenue of 517 million yuan, +24.09% YoY, +223.68% month-on-month, net profit of 66 million yuan, +43.94% YoY, and +755.98% month-on-month. The performance was in line with expectations.

The company has performed well in 23 years, and the low-temperature flue gas waste heat recovery system is growing rapidly. In 2023, the company's performance grew rapidly. Among them, dry/wet slag removal systems achieved revenue of 2,93/191 million yuan, year-on-year +28.06/ 8.12%, gross margin 33.43/ 39.52%, year-on-year -1.60/+1.08pct; full-load denitrification business achieved revenue of 128 million yuan, -25.24% year-on-year, gross profit margin of 33.19%, year-on-year -3.49 pct; the low-temperature flue gas waste heat recovery business achieved revenue of 245 million yuan, +100.10% year-on-year, gross profit margin of 28.63%, same Ratio +6.94 pct

With the implementation of a capacitive electricity pricing mechanism, companies are expected to benefit from high demand for flexible thermal power transformation. According to data from the National Energy Administration, China added 39.44 GW of installed capacity in 2023, +29.57% over the same period; in terms of completed investment, the total amount of basic investment in thermal power for the whole year was 102.9 billion yuan, +15% over the same period last year. On January 1, 2024, the coal-capacity electricity pricing mechanism began to be implemented, providing compensation for coal power units according to fixed costs, enhancing the profitability of thermal power in the short term, and paving the way for the transformation of thermal power to regulated energy sources. The company is leading the industry in full-load denitrification technology. The company is expected to benefit from the technology required for thermal power flexibility transformation. The transformation of the role of thermal power and the increase in demand to reduce peak demand is beneficial to the process related to flexibility transformation.

The active layout of the steel slag business and hydrogen energy is expected to open up new growth space. In terms of steel slag business, in '23, the company signed a contract with Beijing Shougang Construction Group Co., Ltd. to purchase equipment for comprehensive industrial use of steel slag, with a contract amount of 104 million yuan, indicating that the company has successfully opened up the steel slag treatment market. In terms of hydrogen energy, the company plans to build a 120MW fishery and light complementary project in Jiaozhou, with a construction scale of 90MW and 20MW hydrogen production equipment. The project is expected to be connected to the grid in 24 years, and the company is expected to open up room for growth in the hydrogen energy field.

Investment advice: The company's net profit for 24-26 is expected to be 136/1.78/207 million yuan, +57.1%/+30.6%/+16.6% year-on-year, and EPS of 1.11/1.44/1.68 yuan respectively, maintaining a “buy” rating.

Risk warning: demand for thermal power flexibility transformation falls short of expectations, risk of fluctuations in raw material prices, etc.