Incident: On the evening of April 15, 2024, the company released the “2023 Annual Report”. In 2023, the company achieved operating income of 3,529 million yuan, an increase of 20.72% over the previous year, achieved net profit of 344 million yuan, an increase of 22.74% over the previous year, and realized net profit without return to mother of 316 million yuan, an increase of 24.25% over the previous year, and achieved an EPS of 0.61 yuan, an increase of 22.00% over the previous year.
The performance was in line with expectations, and the company achieved steady growth in revenue and net profit to mother in 2023. In 2023, the company achieved operating income of 3,529 billion yuan, up 20.72% year on year, and achieved net profit of 344 million yuan, up 22.74% year on year. Considering the impact of share payment expenses in 2022 and 2023 (impact on net profit of 34 million yuan and 56 million yuan respectively), after restoration, net profit to mother was 400 million yuan, an increase of 27.30% year on year, and realized net profit without return to mother of 316 million yuan, an increase of 24.25% year on year. Looking at a single quarter, 2023Q4 achieved revenue of 1,457 billion yuan, up 1.31% year on year, and achieved net profit of 134 million yuan, a year-on-year decrease of 18.14%. We believe that this is mainly due to 1) seasonal fluctuations in the company's computer room temperature control revenue, which accounts for a relatively high Q4 revenue; 2) the impact of 2022Q4's high base.
The share of cabinet temperature control and energy-saving products continues to rise, and the revenue from liquid cooling for data center computer rooms and computing power equipment is impressive.
By business, 1) In 2023, the company's computer room temperature control and energy saving products achieved revenue of 1,640 billion yuan, accounting for a year-on-year increase of 13.83%, accounting for 46.48%, a year-on-year decrease of 2.81 pct. In 2023, the company successively won bids for large-scale data center projects such as China Mobile, China Telecom, and Southeast Asia. As of March 2024, the company's Coolinside liquid cooling full-chain solutions have been delivered to a total of 900 MW. In terms of electronic equipment cooling, the company's cold plate products have been officially included in the Intel Eagle Stream server design guide file. The products have been approved by some mainstream computing power chip manufacturers and leading computing power equipment manufacturers and obtained large-scale procurement applications. In 2023, the company's revenue from liquid cooling technology for data center computer rooms and computing power equipment was about 4 times that of 2022.
2) In 2023, the company's cabinet temperature control and energy-saving products business revenue was 1,465 billion yuan, accounting for 41.53% of revenue, up 3.84pct year on year. In 2023, the company continued to promote product iteration, enrich the product matrix, launch drawer liquid cooling units for industrial and commercial energy storage, and take the lead in delivering BattCool energy storage solutions for 5MWH high-density high-capacity energy storage systems. In 2023, the company's revenue from energy storage applications was about 1.22 billion yuan, an increase of 44% over the previous year, and its contribution to the company's revenue continued to increase.
Cost reduction and product portfolio optimization have achieved remarkable results, and the company's gross profit margin and net interest rate levels have continued to rise. In 2023, the company achieved a gross margin level of 32.35%, a year-on-year increase of 2.54 pct, a net interest rate of 9.88%, and a year-on-year increase of 0.40pct. This is mainly due to the company's implementation of a series of cost reduction and efficiency measures in 2023, continuous optimization of the product portfolio, and the relative stability of superimposed raw material costs. By product, 1) in 2023, the company's computer room temperature control and energy saving products achieved a gross profit margin of 31.53%, which was mainly due to positive factors such as the company's product portfolio optimization, cost reduction and efficiency, and commodity prices; 2) In 2023, the company's cabinet temperature control and energy saving products achieved a gross profit margin of 32.16%, a year-on-year decrease of 0.14 pct, mainly due to increased market competition in some industries.
Expense control was good. Excluding the impact of share payment fees, the four fee rates increased 1.06 pct year-on-year. In 2023, the company's four expense ratios were 19.53%, up 1.56 pcts year on year, and 1.06 pct year on year after excluding share payments, of which sales expenses/ administrative expenses/ R&D expenses/ financial expenses were +25.20%/+33.70%/+34.45%/+169.61%, sales expenses rate/ management expenses rate/ R&D expense rate/ financial expense ratios were 7.54%/4.36%/7.45%/0.18%, respectively, +0.27pct/+0.43pct/+ 0.76pct/+0.10pct
Operating cash flow increased sharply year over year, and on-hand orders were abundant. 1) In terms of cash flow, the company's net operating cash flow reached 453 million yuan in 2023, an increase of 135.50% over the previous year, mainly due to the fact that the company received more cash from selling goods and providing services in 2023. 2) In terms of orders, the company's contract debt balance in 2023 was 184 million yuan, an increase of 84.28% over the previous year, mainly due to an increase in pre-received customer payments. The company's inventory balance was 673 million yuan, an increase of 53.09% over the previous year, mainly due to the increase in goods shipped without inspection and preparation inventory for the company's projects. Among them, the book value of issued goods reached 270 million yuan, an increase of 92.86% over the previous year. 3) In terms of accounts receivable, the company's accounts receivable balance reached 1,731 billion yuan in 2023, up 17.89% year-on-year, slightly lower than the revenue growth rate. 4) In terms of construction projects, the total number of projects under construction by the company in 2023 was 128 million yuan, an increase of 443.25% over the previous year, mainly due to increased investment in the construction of the South China headquarters engineering base. It is expected to reach the scheduled state of use in October 2024.
In terms of asset impairment preparations, preparations for impairment of goodwill have increased in Shanghai Cotai, and the rest has basically remained stable. In 2023, the company's asset impairment reserves reached 96 million yuan, an increase of 68.46% over the previous year, mainly due to a sharp increase in the company's goodwill impairment preparations in 2023, reaching 75 million yuan, an increase of 373.34% over the previous year. The company acquired shares in Shanghai Ketai in 2018 to form a goodwill of 249 million yuan. In 2023, due to factors such as macro-control and local government investment, the implementation of some approved projects slowed down. By the end of 2023, the company had accumulated 91 million yuan in goodwill impairment reserves.
The third phase of the restricted equity incentive plan was granted, demonstrating the company's confidence in medium- to long-term development. In February 2024, the company granted 9.16 million restricted stock options to 305 core management and technical personnel at an exercise price of 19.61 yuan/share. The net profit growth rate for 2024/2025/2026 was not less than 15%/32%/52% based on net profit due to mother in 2024/2025/2026. Based on this calculation, net profit to mother in 2024/2025/2026 was 396 million yuan/454 million yuan/523 million yuan, respectively, laying a good tone for the company's medium- to long-term development.
Investment advice: leading platform-based temperature control solution, “computer room+cabinet two-wheel drive”. At present, the company has formed a multi-segment layout based on unified technology and business platforms, and has the dual advantages of differentiation threshold and scale effect. In terms of computer room temperature control business, the company has successively won bids for key data center temperature control projects at home and abroad. Liquid cooling for data centers and computing power equipment is rapidly expanding, and overall gross margin has increased rapidly; in the cabinet temperature control business, the company has comprehensively promoted product matrix iteration and launched segmented solutions for different fields. Energy storage business revenue continues to grow rapidly, and its contribution to the company's revenue continues to increase. The company's net profit for 2024-2026 is estimated to be 509 million yuan, 670 million yuan, and 889 million yuan, respectively. The corresponding EPS is 0.89 yuan, 1.18 yuan, and 1.55 yuan, respectively, and the corresponding PE is 33 times, 25 times, and 19 times, maintaining a “highly recommended” rating.
Risk warning: raw material price risk, increased risk of industrial competition, progress in liquid cooling technology falling short of expectations.