Incident: On April 15, the company released its 2023 annual report. In 2023, the company achieved revenue of 3,529 million yuan, +20.72% year over year; net profit to mother of 344 million yuan, +22.74% year over year; net profit after deducting non-return to mother of 316 million yuan, +24.25% year over year; net operating cash flow of 453 million yuan, +136% year over year.
Revenue and profit continued to grow, and demand for computing power accelerated. In 2023, the company's revenue and profit continued the double growth of more than ten years, mainly due to the acceleration of demand related to computing power, continuous iteration of related technical solutions, and rapid growth in demand in the energy storage industry. Looking at specific business segments, in 2023, the company's computer room temperature control energy-saving products/cabinet temperature control energy-saving products/bus air conditioning/rail transit air conditioning and services/other sectors achieved revenue of 16.40/14.65/0.92/10.62/225 million yuan respectively, +14%/+33%/+36%/-25%/+32% year-on-year respectively. The rail transit air conditioning business has declined, mainly due to factors such as macro-control and local government investment. The subway rail transit industry has been at a low point in the past 3 years, and implementation of some approved projects has slowed down. However, this year the company will actively expand tenders for new construction project support and construction services in new regional markets, which is expected to grasp the industry's recovery trend.
Gross margin has increased, and investment in R&D continues to increase. In 2023, the company's gross margin was 32.35%, +2.54 pct, mainly due to factors such as the company adopted a series of cost reduction and efficiency measures, compounded by changes in the product sales mix, and the relative stability of raw material costs. On the cost side, the company's expense ratio for the 2023 period was 19.53%, +1.56pct year on year, mainly due to a decrease in exchange earnings and an increase in wage and equity incentive expenses. Among them, sales/management/finance/R&D expenses were 7.54%/4.36%/0.18%/7.45%, respectively, up 0.27/0.42/0.10/0.76pct year-on-year, respectively. The company continues to increase investment in R&D, and continues to invest in R&D and market expansion of new products and businesses based on the business layout in multiple application fields on a unified technology platform. We believe that with the increase in computing power, the market demand for heat dissipation and temperature control is more rigid and requires continuous iterative upgrades. The company is expected to use the advantages of platforming to quickly launch corresponding products to meet customer needs, and we are optimistic that the company will seize the opportunity to achieve continuous development.
Liquid cooling is being introduced at an accelerated pace, and the electronic cooling business is expected to grow rapidly. In terms of air cooling, the company has a rich product line and continues to release new products and solutions. In terms of liquid cooling, driven by the high thermal density trend and energy-efficient cooling requirements of computing power equipment and data center computer rooms, the introduction of liquid cooling technology has been accelerated. The company has invested in liquid cooling technology platforms such as cold plates and immersion, and has launched Coolinside liquid cooling cabinets and full-chain liquid cooling solutions for computing power equipment and data centers. Related products include cooling sources, pipeline connections, CDU distribution, quick couplings, manifold, cold plates, long-term liquid cooling materials, liquid leak detection, etc. The “end-to-end, full-chain” platform layout has become an important part of the company's liquid cooling business competitive advantage. As of March 2024, the company's cumulative delivery of liquid cooling chains has reached 900 MW. Overall, in terms of computer room temperature control, the company has abundant project reserves, and is expected to continue to contribute revenue as subsequent projects are delivered one after another; in terms of electronic cooling, cold plates for computing power equipment have begun to be shipped in batches and have begun to contribute significantly to revenue. As the market for liquid-cooled electronic cooling chain products expands, it is expected to grow rapidly.
The energy storage business is growing rapidly, and the product line continues to be enriched. In 2023, the company's revenue from energy storage applications was about 1.22 billion yuan, +44% year-on-year, driving rapid revenue growth in the cabinet temperature control and energy saving business. The company's product line continues to be rich. Based on the original air-cooled series cabinet air conditioners, the company launched a series of water-cooled units in 2020 and began batch application in various energy storage application scenarios at home and abroad. In 2022, the company released the BattCool Energy Storage Full Chain Liquid Cooling Solution 2.0, which upgraded system performance and operation and maintenance efficiency from the overall solution, full chain, all-scenario, and multi-dimensional aspects, further enhanced its competitive advantage, and continued to launch innovative products and solutions on this basis. With the development of the “dual carbon” goal, the construction demand for energy storage power plants has ushered in continuous rapid growth. The company is the first domestic manufacturer involved in temperature control of electrochemical energy storage systems. It is in a leading position in the domestic energy storage temperature control industry, and is expected to achieve long-term growth with its brand advantages and customer base, as well as continuous product and customer development.
Profit forecast and investment rating: The company's net profit for 2024-2026 is estimated to be RMB 5.10/66/ 862 million yuan, respectively. The current stock price corresponds to PE of 34/26/20 times, respectively, maintaining a “buy” rating.
Risk warning: Customer growth falls short of expectations, downstream demand falls short of expectations, risk of fluctuations in raw material prices, risk of macroeconomic fluctuations.