Key points of investment:
Event: The company released its 2023 annual report. In 2023, the company achieved operating income of 1,029 billion yuan, +35.04% year on year; net profit to mother of 87 million yuan, +48.02% year over year; deducted non-net profit of 81 million yuan, +54.16% year over year.
Driven by increased investment in thermal power, main business performance continued to rise. In 2023, benefiting from a series of favorable policies such as the country's accelerated investment in new thermal power generation and upgrading, market demand for the company's traditional main products continued to rise. During the reporting period, the dry slag removal system among the company's main products achieved revenue of 29.270 billion yuan, +28.06%; the low-temperature flue gas waste heat deep recovery system achieved revenue of 24.520 billion yuan, +100.10% year-on-year; and the zero discharge system for desulfurization wastewater achieved revenue of 1.911 billion yuan, +36.41% year-on-year, and overall revenue maintained steady growth.
R&D cost rate increase, scientific and technological innovation and industrial layout optimization. During the reporting period, the company continued to increase R&D investment, and the R&D cost rate increased to 4.93%, +0.64pct. Taking advantage of the technology platform, the company has attracted scientific and technological innovation talents, strengthened scientific and technological cooperation, added many patents and software copyrights throughout the year, and participated in the formulation of industry standards. The company has also established a hydrogen energy technology testing center to promote research and development of hydrogen energy technology. At the same time, the company has adjusted its industrial layout, optimized its product structure, enriched its business model, consolidated its advantages in the energy saving and environmental protection treatment industry, and promoted the development of clean energy and hydrogen energy technology. The company plans to expand technical products to more industries, and has cooperated with steel companies to promote innovation in comprehensive utilization technology of metallurgical slag to achieve technological industrialization and sustainable development.
A successful breakthrough in the new steel slag business has become a new driving force for performance growth. In 2023, the new steel slag energy saving and environmental protection treatment business achieved an innovative breakthrough, which jointly helped the company's business performance grow steadily. The product contributed 9.187 billion yuan in revenue, and the gross margin reached 40.43%, which was higher than the main business. Steel slag is one of the bulk industrial solid wastes in China, so the market demand for treatment is high. The company's steel slag roller crushing and waste heat recovery technology can save 85% of water, the waste heat recovery rate reaches 30% to 40%, and can treat high-viscosity steel slag such as converter slag, which has significant energy saving and carbon reduction significance than conventional treatment technology. Therefore, we expect future business to continue to expand and officially become a performance growth point in the company's new application areas.
Profit forecasting and investment advice. The previous values of 24-25 revenue and net profit to mother were 1,386/1,888 million yuan and 173/249 million yuan, respectively. Based on the financial data in the company's 23 annual report, we adjusted and added a profit forecast for 26 years. We expect the company's revenue for 2024-2026 to be 1,323/16.48/1.991 billion yuan, respectively, with net profit attributable to mother of 1.32/1.61/196 million yuan, EPS 1.07, 1.31, and 1.59 yuan/share, respectively. 11.8, 9.7 times. Based on comparable company conditions, the 2024 PE valuation is 18 times, with a target price of 19.28 yuan/share. Maintain the company's “buy” rating.
Risk warning: The scale of thermal power investment and construction falls short of expectations; the risk of policies falling short of expectations; the risk of seasonal revenue and operating performance; the risk of increased market competition.