The 2023 results are in line with expectations, and the net profit after deducting non-net profit grew rapidly in 1Q24
According to the company's 2023 annual report, the company's revenue in 2023 was 3.17 billion yuan, up 15.9% year on year; net profit after deducting non-return to mother was 360 million yuan, in line with the previously issued performance forecast (profit of 3.4 to 40 million yuan), with a year-on-year increase of 27.0%. According to the 2024 quarterly report, 1Q24's revenue was 720 million yuan, up 12.5% year on year; net profit after deducting non-return to mother was 90 million yuan, up 35.4% year on year, achieving rapid growth, mainly due to: 1) the steady recovery of the domestic economy and the acceleration of the digital transformation and upgrading of the enterprise; 2) the company continued to reduce costs and increase efficiency, driving upward profitability. Considering the improvement in the company's profitability, we expect the company's net profit to be 5.14/6.36/7.57 billion yuan from 2024 to 2026 (previous value: 5.07/6.36/-) billion yuan, respectively. Comparable to the company's 2024 Wind consensus, the average PE value is 14x. Considering the company's leading position in the smart gas meter field, the company is given 15x PE for 24 years, corresponding to a target price of 18.31 yuan (previous value: 18.08 yuan), maintaining the “increase in holdings” rating.
Gas meter business revenue grew steadily; water business developed rapidly
The company lays out two major application scenarios, digital gas and digital water. According to the company's 2023 annual report, by sector, the company's smart civil gas business revenue in 2023 was 1.86 billion yuan, up 16.3% year on year. Driven by favorable policies such as renovation of old urban pipelines and urban lifeline safety engineering construction in China, industry-side demand continued to be released; smart industrial and commercial gas business revenue was 660 million yuan, up 8.1% year on year. With the steady recovery of the domestic economy, customer demand recovered; the revenue of smart water terminals and systems was 280 million yuan, an increase of 2.8 billion yuan year on year. 53.2%, achieving rapid growth; smart utility management system (and other) business revenue was 370 million yuan, up 8.4% year over year.
Comprehensive gross margin continues to rise, and the cost side remains stable
The company continues to strengthen operation management, actively carry out cost reduction and efficiency work, reduce product costs through measures such as R&D and design improvement and material procurement; improve the level of cost management through further promotion of comprehensive budget management. The company's consolidated gross margin in 2023 was 42.3%, up 4.1pct year on year; 1Q24 comprehensive gross margin was 40.9%, up 0.8 pct year on year. Expenses are basically stable. The sales/management/R&D expenses rates in 2023 were 18.0%/4.6%/7.0%, respectively, +1.1/+0.1/-0.0pct. In terms of cash flow, the company's net operating cash flow in 2023 was 430 million yuan, an increase of 2.8% over the previous year.
The urban lifeline safety project has been fully launched, and the smart gas meter leader will start again in May 2023. The Ministry of Housing and Construction stated that it will fully launch the urban infrastructure lifeline safety project. It was mentioned that supporting the construction of IoT intelligent sensing equipment will be promoted to gradually achieve comprehensive sensing, automatic collection, monitoring, analysis, and early warning reporting of urban infrastructure lifeline operation data. We believe that with relevant policies or their successive introduction, the demand and penetration rate of smart gas meters and smart water meters in China is expected to continue to rise. As a leading manufacturer in the smart gas meter field in China, the market share of superimposed companies is expected to increase further in the future, and the company is expected to usher in new development opportunities.
Risk warning: Demand for gas meter updates falls short of expectations; smart water business development falls short of expectations.