Incident: The company released its 2023 annual report, achieving full year revenue of 3.68 billion yuan, +15.40% year over year; net profit to mother of 217 million yuan, +431.95% year over year; net profit after deducting non-return to mother 166 million yuan, +1825.92% year over year. On a quarterly basis, 23Q4 achieved revenue of 1,097 billion yuan, +26.38% year over month, +38.54% month on month; net profit to mother of 45 million yuan, +471.35% year on year, -24.87% month on month; net profit without return to mother was 0.04 billion yuan, +190.25% year over year, and -93.85% month on month.

The full-year results were in line with expectations, and laser sales increased. The increase in the company's performance is mainly due to the company's comprehensive promotion of market expansion. In 2023, 159,000 lasers were sold, up 16.39% year on year. Of these, sales of more than 10,000 watts were nearly 6,000 units, an increase of nearly 80% year on year, leading the domestic market share. The company's core business, strategic business, and international business all showed a rapid growth trend, with new customers growing by more than 30% year over year.

The gross margin increased significantly, and the expense ratio fluctuated slightly during the period. 1) Gross profit margin: The company has made comprehensive efforts to reduce raw material costs, R&D and design costs, product quality control, lean production management, and logistics cost reduction. In 2023, the company's gross margin was 26.00%, +7.94 pct. Among them, 23Q4 gross margin was 28.82%, +6.65pct year over year, and +3.15pct month-on-month. 2) Period expenses: The company's expenses rate for the 2023 period was 18.64%, +1.87 pct year on year. Among them, sales, management, R&D, and finance expenses were 6.81%, 2.58%, 9.19%, and 0.06%, respectively, +2.49, +0.16, -0.51, and -0.28 pct, respectively.

Comprehensively strengthen technological innovation and accelerate the improvement of the industrial layout. In 2023, the company continued to increase R&D investment in basic technology, materials, devices, light sources, etc., horizontally building a “four complete” (full pulse width, full band, full power, full application) laser product system, and deepening its own development and production of core devices vertically. At the same time, in order to further promote the optimization of resource allocation and the clustered development of the laser industry, optimize the industrial structure, improve the industrial layout, and invest in the establishment of a wholly-owned subsidiary Smart Photon to form an industrial development pattern involving Wuhan, Huangshi, Wuxi and Shanghai, effectively enhancing the company's overall competitiveness.

Profit forecast: We expect net profit to be 3.32 billion yuan, 4.32 billion yuan, and 556 million yuan respectively in 2024-26, maintaining the “increase in holdings” rating.

Risk warning: Downstream demand recovery falls short of expectations, new product release falls short of expectations, and industry competition intensifies.