Incident: The company released the 2023 annual report and the 2024 first quarter report. The company achieved revenue of 2,237 billion yuan, an increase of 2.2%; net profit to mother was 205 million yuan, a significant increase of 92.4% over the previous year.

On a quarterly basis, the 23Q4 company achieved revenue of 717 million yuan, a decrease of 1.7%, and net profit of 144 million yuan, an increase of 233.2%; the 24Q1 company achieved revenue of 337 million yuan, a decrease of 13.5%, and net profit to mother of 29 million yuan, an increase of 64.2%. The high increase in performance in 23 years was due to a sharp increase in production and sales of the holding subsidiary Hongtian Technology. This was due to a sharp increase in net profit of the mother to 260 million yuan. At the same time, the company's shareholding ratio in Hongtian Technology increased from 51% to 81%, which is in line with our expectations.

The traditional business was divested at an accelerated pace, and the new energy equipment business became a new growth engine. In 23, the company accelerated the divestment of inefficient assets to optimize resource allocation, sold 100% of the shares in Suzhou Dawson Drilling & Production Equipment Co., Ltd., and cancelled the Yangcheng Lake Branch. In addition, the company also acquired 30% of Hongtian Technology's shares, strengthened the business layout of electrolytic copper foil and ultra-precision vacuum coating equipment, optimized the company's asset structure, and completed the first phase of employee incentives.

Production and sales of the electrolytic copper foil business were strong. Anode plate consumables and overseas layout supported long-term growth in 23 years, and the company's electrolytic copper foil business achieved revenue of 1.14 billion yuan, an increase of 92.94%, gross profit margin of 35.1%, and an increase of 4.94 pct. This is due to the increase in demand from Hongtian Technology's strong production and sales customers in 2023, and order acceptance increased. 1) The upstream expansion of domestic electrolytic copper foil production has slowed down, and the company has begun to actively break through overseas. Currently, the company has sufficient orders, and traditional electrolytic foil equipment still has performance support in 24 years. 2) Anode plates are important consumables for electrolytic copper foil equipment, and the net profit level per unit is high. It is expected that orders for electrolytic copper foil equipment will continue to be implemented in 24 years, and anode plates are expected to release elasticity.

The ultra-precision vacuum coating business is advancing at an accelerated pace, and advanced PVD technology is leading new trends in the industry 1) The company can currently produce vacuum magnetron sputtering coating machines, vacuum magnetron sputtering evaporation composite coating machines, and vacuum evaporation coating machines. Among them, the magnetron coating machine is the first one-step dry vacuum magnetron sputtering all-in-one machine in the country, which can coat various metal materials on both sides; the composite coating machine can achieve double-sided copper plating and aluminum plating more efficiently; the evaporative coating machine can achieve double-sided aluminum plating at low cost and high efficiency. 2) The pure magnetron coating machine design costs 5-6 yuan/square meter for copper plating, and has achieved 10,000 meter coverage. In addition to existing new energy customers, it is expected to expand semiconductor and consumer electronics customers in the future. 3) The price of composite coating equipment is estimated to be 60 million yuan, and the design speed is 12-15 meters. The theoretical cost is expected to be lower than that of electrolytic copper foil. The assembly has now been completed, and a new order is expected to be launched after commissioning is completed. 4) Composite aluminum foil evaporation equipment is being commissioned and is expected to be launched 24H1.

Increase capital to Daniu's joint venture Ruishi Micro to accelerate the construction of a full-chain vacuum coating platform. The company plans to acquire 15% of Suzhou Daniu's shares for 15 million yuan and establish a subsidiary with Anhui Ruishiwei Intelligence with an investment of 37.5 million yuan. The acquisition is expected to supplement the strength of high-end composite fluid collection equipment and accelerate the construction of a full-chain platform for vacuum coating.

Investment advice: We expect the company to completely divest its traditional business in 24, and Hongtian Technology will contribute the main growth. We expect the company to achieve a profit of 3/5/600 million yuan in 24/25/26, corresponding to 17/10/9 times PE, and maintain the buying rating.

Risk warning: Market competition increases risk, risk of market demand falling short of expectations, risk of investment projects, etc.