Incident: The company publishes its annual report for the year 23 and the quarterly report for '24. In '23, the company achieved revenue of 212 million yuan, +1.18% year-on-year; net profit withheld from mother was 62 million yuan, or -27.46% year-on-year. The 24Q1 company achieved revenue of 0.31 million yuan, -10.34% year on year; net profit withheld from mother was 03 billion yuan, or -56.10% year-on-year.
Revenue side: The 23H2 and 24Q1 revenue growth rate has slowed, but looking ahead to forward-looking order indicators, up to now, the company has won 110 million yuan of public bids in 24, and there are plenty of orders in hand. The tender results for 35 phased array radars in Guangdong Province will soon be announced. It is estimated that the single order amount will exceed 200 million yuan, which is close to the company's annual revenue for '23.
Profit side: Gross profit margin of 76.3% in '23, -4.52pct year on year. We think the main reason was that the company cut prices in response to competition; 24Q1 gross profit margin was 80.84%, +0.09pct year over year, and +4.58pct month-on-month, and gross margin rose to a high level.
Cost side: Significant production expansion and personnel recruitment in '23 and 24Q1 led to higher costs. R&D expenses in 23 years were 57 million yuan, +35.27% year on year; 24Q1 R&D expenses were 0.19 million yuan, +34.02% year over year. The sharp increase in R&D expenses put pressure on the company's profits in the short term. The main reason was that the company's phased array radar was expanding from X band to C and S band, and downstream from meteorology to water conservancy and airport air traffic control. In addition, in order to accelerate the expansion of production capacity, the company temporarily leased an external plant to expand production capacity; the number of employees increased to 232 in 23, an increase of 14% over the previous year, and a recruitment plan for about 150 people was added to the company's official website in April '24, which is expected to accelerate the expansion of the company's phased array radar products to develop downstream applications.
Growth Drivers: 1) Meteorological Radar: In January '24, the Guangdong Development and Reform Commission's official website announced the construction target of 69 X-band dual-polarized phased array weather radars in Guangdong Province; in April '24, Guangdong Yuecai Financial Leasing Co., Ltd. plans to purchase 35 X-band dual-polarized phased array weather radars; 2) Water conservancy rain radar: The Ministry of Water Resources issued the “National Water Network Construction Plan Outline” in May '23. The outline indicates that it is necessary to speed up the construction of “three lines of defense” for rain monitoring, including hydraulic rain measurement radars, until '4 In January, the company won bids for Beijing, Tianjin, Water conservancy and rain measurement radar projects in Guangxi and other places; 3) Civil aviation control radar: China's key equipment such as air traffic control radar, navigation, and surveillance is basically monopolized by foreign manufacturers. At present, the company has signed observation and testing cooperation agreements with many major domestic airports, and the product is in the marketing stage; 4) Low-altitude surveillance radar: As low-altitude flight activity increases, in order to ensure the safety of important targets and sensitive areas, low-altitude surveillance radars are installed to significantly improve the safety monitoring capabilities of low-altitude airspace usage. Zhuhai has announced that it will basically complete the construction of a global low-altitude transportation network system below 1000 meters by the end of June '24, including the deployment of low-altitude phased array radars; 5) Defense radar: The company passed the weapons quality management system certification in '22 and has passed the weapons quality management system certification with Guangdong The Provincial Military Industry Group Co., Ltd. reached a “Defense Product Strategic Cooperation Agreement” to jointly promote the market-based application of fully polarized active phased array radars in the defense field.
Investment advice: The company is a domestic civilian phased array radar expert. It has benefited from the construction of a meteorological phased array radar network+treasury bond water rain radar construction in the short term, benefited from the construction of a low-altitude economic weather monitoring network and domestic air traffic control radar replacement, and entered the larger military defense phased array radar market in the long term. The company sold 29 phased array radars in '23. Considering the recent continuous bid for the Beijing, Tianjin and Guangxi projects, we raised our 24/25/26 sales target to 80 units/140 units/180 units. The net profit for 24/25/26 is estimated to be 2.77/5.50/744 million yuan. The current price is 35/1318/xPE for 24/25/26, respectively, maintaining a “buy” rating!
Risk warning: risk of raw material price fluctuations, increased risk of industry competition, risk of technology research and development, business risk, accounts receivable risk, risk of changes in government subsidies.